Australia’s economy: hot or not?

With the Australian Government announcing a $30billion collapse in revenues and indicators pointing to an end of a mining boom that has sustained the continent for a decade, it is time to take the economic temperature of nation whose fortune is intertwined with thousands of Irish.

 Australia is what Ireland once was. A nation obsessed with property. Newspapers bulge with glossy property sections, television is littered with DIY and home improvement shows. It is simply impossible to plot a route through Melbourne, Sydney, Brisbane or Perth that doesn’t involve bumping into a swarm of construction workers or ‘tradies’ building the latest addition to an Australian skyline. In a nation where median home values have increased by 86% in real terms from $259,000 in 2001 to $482,000 in 2010, property prices still reserve a place in the conversational rolodex at dinner parties.

22 years of successive economic growth without the sniff of a recession have ensured Australia is one of the wealthiest countries in the world. ‘The decade to 2010 was one of considerable growth in the wealth portfolios of Australian households with average wealth increasing substantially in real terms, from $495,000 in 2002 to $684,000 in 2010’ highlights University of Melbourne Associate Professor Roger Wilkins. Astute financial management, geological luck but significantly China were primary reasons why the world’s forgotten continent has seen its wealth surge.

China gorged on Australia’s natural resources, primarily its iron ore, a vital ingredient for steel and essential building block for impatient industrial nations determined to influence the world stage. Stretching back 150 years, mining has always been closely tied to Australia’s economic fortunes, in this last decade however Australia experienced a mining boom of ferocious speed.

Modern technology, resolute entrepreneurial determination and world demand conspired to produce sprawling vast mines in deeply barren, sun drenched regions across Australia. Surrounded by red soils in temperatures that surpass 40 degrees, workers, many of whom are Irish, earn an average of $2000 (1300 EUR) a week extracting minerals such as iron ore and coal before placing it on its way to hungry world markets. It is a desolate life and a simple formula but one that reaps handsome dividends.

One man who has had a ringside seat from the very beginning of Australia’s mining boom has been Rathfarnham native Mark Keogh. In 1998 Keogh established his mining services company, UON, in the unofficial mining capital that is Perth in Western Australia. Since then his company has grown from 6 to 148, bagging national industry awards in the process and working with the towering mining giants Rio Tinto and BHP Billiton. ‘Back in the nineties this was an industry that was operating on its bare bones, today it is an entirely different beast where your success depends on the type of individual that you are.’ Individuals tempered for this mining environment have reaped the rewards.

In the decade to 2012-13, according to the Grattan Institute, real wages grew by 2.7 per cent in the Australian mining states, almost triple the 1.0 per cent a year in the non-mining states.  With mining workers earning an average of $150,000 (102,000 EUR) a year, a new reference was coined to describe them. CUB’s or Cashed-up Bogan’s, (bogan referring to Australian slang for an uneducated blue-collar worker), lavishly spent and the economic tentacles of the mining boom spread. ‘Between 2009 to the end of the last year the mining investment boom added 1% per annum to Australia’s growth rate, basically a third of the total growth of the entire country’ underlined the Chief Economist  with Bank of America – Merrill Lynch Australia, Saul Eslake.  With high commodity prices as the fuel, Australia’s terms of trade and dollar all shot up.

Not long after it was floated in 1982 the Australian dollar could suffer a plunge after a few ill-chosen words. ‘We’ll just end up being a third-rate economy. You know, a banana republic’,  these off the cuff remarks from the then Treasurer Paul Keating, as Australia mired in recession in the 80’s, led to the ‘Aussie’ plunging by 10 per cent.  Today the dollar is a sinewy beast, made muscular by high commodity prices and lovingly caressed by nervous investors who fled to a safe haven in the turmoil of the GFC. In 2011 the dollar hit a 28 year high of 110.55 US cents and Australia has been left standing with just 7 other countries in the world that hold a triple A rating. It has been a source of thumping pride to the Aussies as they have seen their currency soar, but it has come at a cost.

Australia is suffering what economists call a classic case of ‘Dutch Disease.’ Coined in 1977 to explain the decline of the manufacturing industry in the Netherlands after the discovery of natural gas there in the 1950’s, Australia is today frantically searching for a cure. The high dollar is accelerating the erosion of Australia’s manufacturing industry, particularly its automotive industry, and is leaving sizeable trade exposed industries such as tourism and education to suffer the consequences. ‘The high currency while being a reflection of Australia’s good economic fortunes compared to other countries has certainly taken a toll on Australia’s competitiveness,’ underscores Eslake.  One of the biggest casualties of this currency squeeze has been Ford, who after nine decades in the country announced in May it was packing up, with the loss of 1,200 jobs.

Although Australia did experience increased unemployment due to the GFC, it nimbly sidestepped the worst extremities. Yet the impact is still being felt in two areas, a political fixation to not run a budget deficit and a dent in the typical Australian swagger translated as sharply reduced consumer confidence.

Flick on a radio in the last twelve months in Australia and one would have thought that the IMF had just politely knocked on the door. The economic catastrophe that consumed Europe and the high deficits ran up by Eurozone countries has infected public debate and drove a hysteric political mantra to achieve a budgetary surplus at all costs. Such economic fretting has assisted in wilting consumer confidence with retail sales this week posting their weakest fiscal year in more than half a century as Australian’s decide to opt for the piggy bank instead of the credit card. ‘In the last 12-14 months consumer spending in Australia has been weak reflecting an increase in precautionary savings as Australians confront prospects of slower growth in activity and employment’ summarised Professor Guay Lin from the Melbourne Institute. In an effort to jump start the economy the Reserve Bank of Australia has cut interest rates eight times since November 2011, to it’s now historic level of 2.5%. The economy has failed to ignite.

Nervous consumers’ dampening spending, a high exchange rate eroding trade exposed sectors, mixed with a lack of political direction and a slowdown in China and you have the perfect recipe for a sluggish Australian economy.

China and the Asian region exercises a hypnotic trance over Australia. Not a week passes without a polished conference of some variety seeking with lofty ambition to explore opportunities in this ‘Asian Century.’  It is not surprising considering that 35% of Australian exports are gobbled by China and that by 2030 Asia is expected to account for 60 per cent of global middle-class consumption. That’s quite a lot of customers sitting on your door step.

China’s slowdown and move to a new era of sub 10% economic growth impacted Australia. As commodity prices fell from their meteoric highs mining companies have responded by reigning in expansion plans and cutting back on contractors. In the past year Australia’s coal industry laid off 11,000 workers, a fifth of its workforce. While Australia’s commodity prices have fallen for five months in a row, they still remain high and the economic juggernaut that is China will continue to ensure opportunities remain in Australia’s mining frontiers. ‘‘There is no western economy that is more exposed to a risk of a hard landing in China than Australia is, but there is a low probability of a hard landing in China’ comments Eslake. The Minerals Council of Australia estimates the country needs an additional 86,000 workers by 2020 and from his operations in Perth, Dubliner Keogh is bullish, identifying the next expansion wave in the Australian resources story as come from natural gas and leading for a long life ‘the resources industry is simply going to span the next twenty to fifty years.’

The sun isn’t setting on Australian economic fortunes, rather it is shedding light on new opportunities. Earlier this year the Australian Economic Review outlined the starling fact that in 2012, more people are employed in health care and social assistance services than in the mining and manufacturing sectors, collectively. Mining is significantly important, but economic opportunities exist across sectors.

The engineering, medical and trades sectors have been areas where Irish workers have been traditionally hoovered up. In the 2011 Australian census 67,316 people listed Ireland as their country of birth, up 50,260 from the 2006 census, a whopping increase of 33 per cent. Education and skills of a high quality combined with the Irish strong work ethic have been vital ingredients in Irish success under the sun. In his office in Sydney, Belfast local and migration expert John McQuaid outlines the demographic time bomb facing Australia, ‘In the next ten to twenty years Australia is going to have so many people hitting the retirement age that there isn’t simply enough young people to keep the economy going. The Government, irrespective of its political persuasion, realises that the key to Australia’s continued stability and growth is through migration.’

Migration, both legal and illegal, has been at the very tip of the political arrows that have been erratically flying in Australia for the past year, as an exhausting election year culminates with a general election on September 7th. An unpopular Labour government, in a move to reinvigorate a disenchanted union base, promised a clampdown on the 457 visa which has been the main gateway for Irish people working in Australia. So far it has been an abundance of political rhetoric to ‘protect local jobs’ with the only practical change being a doubling of visa fees, making it that more financially onerous, for example, for young families seeking to move to Australia.

As the Government viciously duels with the Coalition for the seats of power in the nation’s capital Canberra, the tone of political debate and absence of leadership concerns the business community.  Unemployment meekly protrudes at 5.7% in Australia, but in an election year perspective is lost.  The recent announcement of a $30 billion (20.4 billion EUR) budget deficit equating to 1.9 percent of GDP, compared to the U.S. deficit equivalent of 5.4 percent, and the euro area’s gap of 2.6 percent of GDP, was met with howls of protest. ‘A change of mindset and a focus on what Australia has, as opposed to what it doesn’t have, is sorely needed. There are many positives here, but unfortunately the negatives generate more reaction and reporting’ concludes the President of Irish-Australian Chamber of Commerce Colin Egan.

In the very heart of Melbourne, at the corner of Queen and La Trobe streets sits a commanding and beautiful Victorian building with a striking edifice that wraps across both streets. It is the home of the Celtic Club, the second oldest Irish organisation in Australia, established in 1887 to help relinquish the English vice on Ireland by obtaining Home Rule. Today it as meeting point for generations who arrived here by air, and of their own free will. In an illustration of the times it is not political upheaval that is occupying its member’s minds, but rather they are mulling over a $12million bid by developers, eager to turn their home in a 48-level tower. Inside the historic building the club President Seamus Moloughney reflects on Irish opportunities Down Under, ‘I look out across this Melbourne sky and I see cranes dotted with Irish surnames. You could be back home listening to the endless drip of bad news on the radio or you could come out here and grab the opportunities.’

 Originally published in the Sunday Independent. Additional reporting Bloomberg.

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