Testing times for Australia’s ‘open for business’ mantra
With the mining boom coming to an end and growth slowing in China, prime minister Tony Abbott faces his biggest test
An employee walks past a stacker as it loads crushed iron ore at a processing facility in the Solomon mining hub in Western Australia. The mining industry, along with mining-related activities, accounts for almost 20 per cent of Australian GDP, and 10 per cent of employment. Photograph: Sergio Dionisio/Bloomberg
The management – Abbott’s conservative Liberal-National coalition – may be new, but the challenges facing Australia remain the same: how to rebalance its economy as the decade-long mining boom comes to an end.
Growth is slowing in resource-hungry China, Australia’s largest trading partner and by far the biggest purchaser of its exports. And that dependence is increasing – in the second quarter of 2013, China accounted for 35.4 per cent of all goods exported from Australia, its highest ever level.
Abbott underlined the importance of this relationship in his first appearance on the international stage as prime minister, at the Asia Pacific Economic Cooperation (APEC) summit in Bali in early October.
After his first meeting with the Chinese president, Xi Jinping, Abbott declared his determination to finalise a free trade agreement with China within 12 months.
It’s an ambitious deadline – talks between the two nations have been dragging on since 2005 and gone through 19 separate rounds but have stalled on China’s demands that restrictions on foreign investment be relaxed.
Another sticking point is China’s refusal to raise quotas on Australian agricultural imports, such as wool, beef and dairy products, as it attempts instead to boost production domestically.
The fear in Australia has long been that the Chinese will buy up large swathes of Australian farmland if restrictions are eased.
However, after his meeting with the Chinese premier, Abbott indicated that Australia might be prepared to give way on a number of issues in order to secure a deal that will be crucial to Australia’s continued economic prosperity.
“I have always taken the view that you should take what you can get today and pitch for the rest tomorrow, when you have a strong foundation to build upon,” Abbott said.
Domestic discussions about Australia’s prospects are dominated by fears over the slowdown of China and the end of the mining boom.
In April, the IMF cut its 2013 growth forecasts for Australia to 2.5 per cent, down from 3 per cent, and it expects unemployment, currently 5.6 per cent, to rise above 6per cent for the first time in a decade.
But the country is in much better shape economically than much of the rest of the developed world, particularly when measured against some of the bombed-out economies in the euro zone.
It has avoided the recessions that have engulfed other nations in the wake of the global financial crisis and, partly thanks to the sizeable and swift stimulus package brought in by the Labor government in 2009, has an enviable record of 22 years of unbroken economic growth.
Australia is one of only eight members of the elite “9As” club – a country with a Triple A rating and stable outlook from all three of the major ratings agencies, Moody’s, S&P and Fitch.
Earlier this year, Fitch reaffirmed its AAA rating, saying Australia “has remained one of the strongest performing economies in the AAA universe since the global financial crisis began.”
That confidence is not reflected in consumer sentiment, however, something that can perhaps be explained by the economic negatives batted back and forth in the election campaign.