Is the Australian boom coming to an end?
Business is slowing – slightly – to a level western countries can only dream of
After 23 years of continuous growth, and being the only developed country to avoid recession in that time, there is a feeling in some corners that the Australian economy’s best days are over.
In May, the Conservative- led coalition government of prime minister Tony Abbott introduced the toughest budget in almost two decades, warning that the economic situation was an “emergency”.
“If these necessary measures don’t pass the senate, our triple-A rating is at risk and if we lose our triple-A credit rating, we pay higher rates of interest on our debt,” he said.
More than three months later the budget still has not passed in the senate (where minor parties hold the balance of power) and does not look like doing so without major compromises. Yet Australia still retains its triple-A status from all the major ratings agencies.
Abbott’s concern that the party is over is at least partly borne out by statistics from the Organisation for Economic Co-operation and Development, which show Australia reduced income tax rates from 31 per cent in 2000 to 27.4 per cent in 2013 – one of the lowest in the industrialised world.
Since 2007, government spending increased from 24.8 per cent to 26.2 per cent of GDP, but much of that spending increase was what kept Australia out of recession during the global financial crisis while every other developed country went into recession.
Doomsayers say the writing is on the wall because the Chinese economy is slowing, the Australian dollar is too high (it has been close to parity with the US dollar for the past six years), the International Monetary Fund is concerned about house prices and unemployment has risen to 6.4 per cent – its highest level in 12 years.
Good and bad
There is good and bad in all of this. For a start, Ireland and most other western countries would love to have an unemployment level as low as 6.4 per cent.
Australia exported Au$102 billion (€71.36 billion) worth of goods and services to China in 2013, an increase of $22 billion (28 per cent) on 2012. However that accounted for almost a third of Australia’s total exports, leaving it vulnerable to any sharp downturn in China.
The high Australian dollar has made it expensive to export but, as recent research by logistics company DHL shows, exporters and importers are often the same companies.
University of New South Wales economist Tim Harcourt says that in Australia, “74 per cent of exporters now also import, compared to 39 per cent three years ago. So as the high dollar makes it expensive to sell exports, it also reduces costs of imports [including] inputs like computer technology or raw materials.”
Harcourt says the high dollar has not dampened exporter confidence, with 61 per cent expecting increased exports over the next year.
“It’s not just resources but services that lead the way, followed by agriculture, manufacturing and mining,” he says. “The strength of food and beverage exports in Asia show that we are moving from the mining boom to the dining boom.”
Australia’s house prices are among the highest in the world and are set to keep rising, albeit at a slower rate.
On average, prices rose 10 per cent in the year to June 30th and are expected to grow a further 6-7 per cent in the coming year. The IMF has found Australia has the third highest house price-to-income ratio in the world, behind only Belgium and Canada.
The story varies from city to city though. Sydney’s median house price is about $700,000 (€490,000), Melbourne’s is $560,000 and Perth’s (capital of mining boom state Western Australia) is expected to reach $600,000 by the end of the year.
“Someone who has got a niche skill set will always be able to go to the highest bidder, but for more mainstream roles, the feedback that I’m getting from our members over there is that the rates are on a bit of a downward trend, the market is softening, work is harder to come by,” he tell The Irish Times.
The IACC recently gathered more than 100 industry experts from the infrastructure and development sectors for a conference. “The mood there was very positive,” Corr said. “There is a major infrastructure spending programme in operation at both state and federal level. There is a lot of work out there.”
Corr says the projects involve several billion dollars.
“It will drive demand in the engineering and finance sectors. There is significant international participation within infrastructure. Many of the shortlisted or winning bidders for the major tenders have an international component, and quite a bit of that is from Europe. There are huge opportunities for international businesses and individuals to participate,” he adds.
Billy Cantwell, publisher of the Irish Echo newspaper in Australia, says an increasing number of skilled Irish people are returning home.
“The consensus seems to be that it is getting more difficult to get ahead in Australia because of the high cost of living and the fact that Ireland seems to be recovering well. There is a sense that Australia is suffering from affluenza.”
Corr says that despite the information readily available to people online or by talking to people already in Australia, a lot of people moving Down Under from Ireland are completely unprepared.
“There are cases, especially in Western Australia, of people expecting to find work within minutes or hours, never mind days. There is work available all across Australia, but you’ve got to be capable, you’ve got to be offering skills that are in demand,” he says.
“The streets aren’t paved with gold. If you’ve got a skill that’s in demand in one area of Australia but not another, it stands to reason that you should do your research and know where you are heading. The key for anyone considering a move is to do your research.”
The same thing also applies for any Irish company looking to do business in Australia.