On some measures we look like an emerging economy- vulnerable. It’s time to get cracking. If we don’t, this could be the end of Australia as we know it.
Consumer confidence was up this week off the back of the warm and fuzzy “Malcolm feeling.” But feelings aren’t facts, and wear off fast. I’m here to drill down on the facts… and yes, I’ve got some concerns.
Just in case Malcolm was enjoying his first week in office too much, there was some news that sent a little shiver up my spine.
Last week, Brazil lost its investment grade credit rating, and was downgraded to “junk” status.
Ouch.
Three or four years ago it was all about the BRICs – Brazil, Russia, India and China. Now the wheels have fallen off the economy and the budget is in a real emergency. They’ve just announced $7bn worth of spending cuts, and an $8bn increase in taxes through a financial transaction tax.
And that still won’t cut it… even if it gets through parliament.
Could it happen here? No! We’ve got a gold-plated AAA credit rating. We’re a developed economy.
Thing is though, that that is less true than it used to be.
Because remember that Brazil was once a resources power-house too. But resources aren’t the golden goose they used to be.
If you look at Australia’s exports, Minerals and Metal Ores are down 34% since their peak. That’s bigger than the fall we saw during the GFC.
(Hat tip to: Alpha Beta Strategy and Economics)
But what’s going to fill the gap? Where’s the transition we’ve been waiting for. If you look at the prospects for exports, it’s not pretty. The high Aussie dollar that came with the mining boom, along with a willingness to let many industries go to the wall, has meant that many export-earners have withered and died.
As a percent of GDP, exports have gone backwards in pretty much every non-resource industry:
And that means we now have one of the narrowest export bases in history. In 2000, less than a third of our exports came from resources. Now just three commodities make up over half.
You have to go back to the Korean War Wool Boom in the 1950s to find such a narrow export base.
This is not a good thing. Multiple income streams are a source of strength. Ask any investor. Diversity is security. But now we have over half our eggs in one basket.
And that makes us more like Kenya than Germany. Before the mining boom our export concentration was more or less in line with other high-income countries. Now, some low-income countries like Nepal and Tanzania have more export diversity than we do!
Are we still a developed country? (High prices don’t make us developed.) Sure, we have first-world living standards, but the reality is a dependence on resources leaves us exposed to swings in global commodity markets like some banana republic.
And that means the budget is also dependent on a narrow base too. A $10 fall in iron ore markets can tear billions from forecast revenues.
It’s a slippery slope from here to Brazil.
A dependence on resources leaves us vulnerable.
It’s not hard to paint a terrifying picture. Imagine there’s some sort of global economic shock. Who knows what. It might have nothing to do with us.
But if global growth slows, demand for commodities can stall and prices will drop further.
At the same time as the government will be looking to sure up the economy, revenues will have the guts torn out of them.
They either go into austerity mode – cutting spending and raising taxes just as the economy needs them to be doing exactly the opposite.
Or they keep spending, the deficit balloons, and we lose our AAA credit rating. If that happens, bank funding costs go up (because the government guarantees the banks) and interest rates rise and/or they start calling in loans, just as incomes are falling and unemployment is rising.
Check-mate.
So am I saying that I wish the mining boom never happened?
Nothing like that. If anything, I think the mining boom just brought forward the inevitable for the manufacturing sectors. Automotive manufacturing was always going to struggle. The mining boom just gave the government the cover it needed to finally let the struggling businesses die.
In the sense that it ultimately freed us up from perpetually flogging a dead horse, it could be a good thing.
But now we’ve got some challenges ahead of us. And we’ve got to get cracking.
Because we’re about 8 years behind the rest of the world.
Most economies have had to do some soul-searching. What do you do when everything is made in China?
The mining boom let us put off that question, but the mining boom is over. Now we have to find our ‘why’. We need to find our purpose. What is it that Australia has to offer the world?
So there’s a question for you Malcolm. Welcome to the job. Now where are we going and how do we get there?
In a way, I think its like the nation just lost its job. You can look at retrenchment two ways. Either it’s a disaster, or an opportunity to start over.
That’s where we’re at now.
There’s never been a better time for men of vision. Time to step up Malcolm.
What industries should we be backing? What will the Aussie economy look like in 50 years?
ron says
hi jon, we can surely start by ’embracing the future’ lol..good ol malcolm with the usual pol talk…but can we walk the talk? we need higher interest rates so we can all save our money for a decent return..borrowing at low interest rates serves little purpose. if we save, then the banks can lend one on one dollars instead of this leverage b.s. 78:1 is not good for anyone. meanwhile a final word and one that is very real for all of us and national security….i made a mistake last time i wrote…i wrote that there were 20,000 islamic terrorists integrating with the mass exodus from syria ..no..it is 87,000!!! the names of which were to be handed to interpol and the c.i.a. by russian intelligence..they refused the list saying it was inappropriate and politically unviable!!! now we are gonna accept 20,000 refugees from syria..whats the call on terrorist incursion do you think? very likely indeed…and yet we have been almost fanatical(pardon the term) about keeping the buggers out of here. anyway for the record russia and israel are closing the gates on refugees from syria..smart! i wonder if malcolm knows about this? .or a.s.i.o.? meanwhile top c.i.a. officers are in the kremlin as you read this, having top level talks with russian intelligence about getting rid of obama. it seems c.i.a. is not concerned with the welfare of its citizens as much as getting rid of the president. crazy world.:-) oh well the footy is on tomorrow night. up freo!! go get ’em! (b.hawks)
ed says
Ron, With all due respect, before you write anything or express an opinion on something you may know so little, you must do some real research. Otherwise you will continue rattling with somewhat nonsense BS. Have fun with your footy.
Philipew says
The bit on terrorist infiltration is most probably right though. The IS terrorists of Syria/Iraq have always told us to expect them to take over the west. Well, HERE THEY COME! One day, the horizons of Germany and surrounding countries will be garnished with the shiny roofs of hundreds of mosques where preachers can rally the young who all feel alienated and second-class citizens in freezing Europe. Ever heard about a trojan? This is exactly what a million of so called “refugees” are. But this time the badies don’t hide in a wooden horse because they are far too numerous, they hide in massive crowds instead. Think, if I were a terrorist fighting in say Kobane (on the Turkish border), I would be extremely tempted to easily “mingle” and slip into the heart of Europe’s richest country. Wouldn’t you? Much easier than the CIA or the KGB during the cold war. Like cars, German-made weapons and explosives are first class, and you are on site already!
ron says
hi ed…i haven’t been there i know…but my info is first class…what research do you have? if we continue to be ostriches and believe our government(s) well thats just wonderful..but i am gonna look after me and my family…do you know how to watch out for your family if things get tough? by tough i mean atms out of action, no power(power grid taken out by cyber)..think man think!!! just on finance ..beware of govt. takeover of super..no more cash takeouts..just pensions…wow..!! did you know that! anyway ed..keep me informed of your progress lol oh btw ed…did you know that the usa secretary of state had an urgent meeting with putnin at the kremlin only a few weeks ago? no..really..well i have a pic to prove it. i know that most of this is foreign to people in oz…but it does go on. remember mark twain…he said ‘ if you don’t read the newspapers you will be uninformed..if you do read them you will be misinformed’. he was of course in an era of no radio or tv etc. but the gist is don’t take any notice of the media…the talking heads are goofs. with all due respects to them. oh dear i do go..but its fun lol they wouldn’t put this in the newspapers.:-)
ron says
hi dave,
i love what you say about ‘foreigners’….but wait..we stole this country off the indiginous people many years ago..now we are ‘fencing’ it off to other nationals. thats about it..realistically we should give the proceeds to the original people..just to salve our conciences. you see dave us caucasians have a bad habit of emphasising that ‘might is right’. we have conquered and butchered our way into a lot of countries. its been called now ‘the white man’s burden’. the americans had what they called the ‘indian solution’ : the massacre. killing, whatever of 19 million indians. as far a jon goes, well, like all of us he is living in a ‘grid’..we cannot escape..we can improve our lot, sure, but there is no escape. we thrive in the ‘system’. this system that had an umbrella called china..the umbrella is down..the system is unprotected from the gfc now, unlike 2008 onwards. that gfc was only a stage rehearsal of the big one coming. cover your arse everyone. its up to you…once the dominoes start falling..well you know what that means. but there will be billionaires made in whats coming…but the majority, the ones who trust governments…and believe the media, need i say it. you go figure. and you know..its actually happened before.
ron says
yes ed i knew that 6 months ago…that acronym was a pretence for syria..now israel has done a ‘u’ turn and is siding with russia on many fronts..mr putnin promised a few months ago to turn israel into a glass parking lot if they continued to interfere with crimea and syria…so they at least show commonsense..israel that is. its a shame we can’t see the truth about russia..but our western press won’t even give us a glimpse. what has russia ever done to harm us..and don’t start on mh 17 please..that had nothing to do with russia…but you may raise the query with the c.i.a. i know nobody here will believe that..once again the western press has won the minds of the mindless.
ed says
Please check:
Check/research on Victoria Nuland (Ukraine)
Check The Corbet report on MH17;
http://www.globalresearch.ca/crashes-of-convenience-mh17-fully-exposed-the-shocking-truth-about-the-ukraine-false-flag/5397934
Watch out Pope’s speech at UN on Agenda 2030. It apparently will be declaration of NWO!!
We have to grow out of war, conflicts, separation based on religion, colour, race, gender etc. We are all ONE and we must stop harming one another.
Sorry John, your blog is about economy, politics and real estate…
Biggus Mickus says
Wow! A lot of conspiracy nuts on here. And they all seem to have inside information.
ron says
biggus mickus..the label ‘conspiracy’ was done to hide the truth from the free world. so if you dare question things you are a conspiracy theorist. remember what albert einstein said..it is not the evil doers who will destroy the world.. it is the people who stand by and watch it happen….i always disputed the maxim don’t discuss politics or religion at a social function for instance. well thats the very things we should be discussing…unfortunately we have been ‘dummed out’ by the aristocracy, nobility and royalty..and religious leaders and politicians..who send our young men and women off to war ..and you are probably in agreement with that biggus. spare a thought for those war veterans who suffered death or lost limbs or minds, cheers,. ron
ron says
ed..i agree with you on everything..i have just keyed into the corbett report..it is all about the truth and i will read more. i have access to other mediums..they are about the same..but from different places on the planet. it seems that there is a lot of b.s. going on by our ‘leaders’.
ed says
Philipew and Ron,
You may be interested to check these:
ISIS Creation
Pg.-291-Pgs.-287-293-JW-v-DOD-and-State-14-812-DOD-Release-2015-04-10-final-version11
https://www.judicialwatch.org/wp-content/uploads/2015/05/Pg.-291-Pgs.-287-293-JW-v-DOD-and-State-14-812-DOD-Release-2015-04-10-final-version11.pdf
Busted!!! Isis Is Not Islamic Its The
Israeli Secret Intelligence Service
ISIS revealed as ISRAELI SECRET
INTELLIGENCE SERVICE
philipew says
Islamic or not, the mosques will start appearing everywhere and so will the terrorists… These people will not speak German, wear blue-eye contact lenses, dye their hair in blond, swear allegiance to Angela Merkel and work to better the purist German “Vater Land” . Instead, they will dress, eat, drink, talk, practice religion, raise their children and strictly adhere to their own way of life so as to constitute another people, another totally alien nation within Europe with very little or no integration, or contribution and this for centuries to come… all at the expense of their respective European host. You haven’t addressed this hard fact yet.
Dean Toovey says
Reckon letting the car industry die is a mistake. GM and Ford reckon they cant make money from building cars in Oz. That isn’t the same as Australia can’t make money making cars. I reckon part of the reason they packed up is they couldn’t work out how to hide all the income and get profits back home. The Aussie dollar dropping probably also meant less profits going back home. In other words, a foreigner saying its not worth their while making cars isn’t an indictment on the industry here. China’s low wages won’t last forever and when they go up, it’ll be just as many robots as we have. I reckon we need to look at a joint public/private venture on car making, buy the big plant equipment off holden and ford, licence some nice engine and gearbox designs from mercedes, porsche, whoever and build three basic rolling models: small, medium, light. Then every gov agency and taxi firm uses them: police, ambos, all gov fleets, army etc. Farm out the rolling stock to smaller companies that can do bodies and finish in all shapes and sizes. France learnt the hard way in WW II what happens when you have no steel and no manufacturing. What happens when we’re buying everything from China, then they turn ugly? Places like Israel and South Africa, black-listed for years make some of the best military kit ever. A dose of self-reliance never hurt anyone. Its called having a strategy, a vision, beyond the bottom line. We’ve always lived off “the sheep’s back” chopping down, digging up and fishing out what nature gave us. Time to do some value-add with secondary and tertiary processing of all that primary industry.
Colin G says
I love it Jon, your such a sobering soul. I never thought about the mining boom that way but I can see the positive spin that I can rely upon you finding. Malcolm has a smile and a nice word even when he’s under pressure – thats worth a percentage point or so. I like the emphasis backing the entrepreneurial spirit and encouraging the market to largely fund start ups. Their is a huge amount of money in the super purse that is largely being wasted in churn when it could be earning more in the long term funding big vision sustainable projects.
I hope the government doesn’t feel the need to directly or indirectly prop up the property industry if the market starts to slump. In spite of history of almost continuous property growth, I think we need to experience a decline so that it ceases to be almost a sure thing.
dave says
You want to stimulate the economy and increase retail spending? Stop the bloody foreigners buying up our established properties and let first home owners and Aussies buy them. Foreigners can buy new stuff that will increase rental stock… while the price of established housing is affordable for ALL aussies.. not just investors like you John. When the first home buyers start to increase their wealth as time goes on and pay off their homes.. they have cash reserves to spend. People need to think long term… not prop up our economy with a housing bubble.
Graham says
So whats new? I have been saying for 10 years that we let our manufacturing industry die at our peril. But no no we are going to let every other country raid our economy. Surely it was obvious when our exchange rate was high that if we let manufacturing die when the exchange rate moderated we are up shit creek. It was to me, and I kept telling who ever would listen.
So much for my crystal ball, Blind Freddy could tell we where screwed. Why wasn’t it obvious to the government?
Tom says
Hear here!!!
Governments of any persuasion are composed mostly of well-meaning amateurs, dependent on their public servants for the requisite insights and advice. The problem, as Tony found out (too late), is that the advisers , like their masters are also dependent on the next election result for their position of power. So their message is always what their masters would like to hear, not genuine, intelligent advice.
Paul Miles says
It’s a frightening picture you’ve painted, Jon, but luckily we have had the adults in charge for the last two years. And now that we’re into Good Government 3.0, we should have no problems (as long as Labor doesn’t get in again!!!). Speaking honestly for a moment, and not tongue in cheek, I truly did find Turnbull very impressive on his day of ascension. I actually found myself thinking, “Gee, I just could vote Liberal again, if it’s going to be like this”.
Of course, if you happened to be watching Leigh Sales interviewing new Treasurer Morrison last night on 7.30, one wonders at times still if quite all the adults know what they’re doing. Sales quoted the now well-accepted latest economic figures, and suggested these were areas of considerable concern. (That was of course when Sales was able to get a word in edge-wise – I don’t think Morrison paused to take breath more than a couple of times, in order to prevent her asking more difficult questions.) Morrison addressed her economic concerns by saying that this was only her take on the situation, and then painted a rosy picture of how everything was going to be hunky-dory in the future, because all the adults are being positive now. There was just that little matter of
requiring rather large further decreases in spending. (And preventing Labor getting in again, because this was all their fault.) But no, there will be absolutely no rise in taxes. And everything’s positive.
I, for one, feel very reassured. What does it matter that the car industry, that also propped up many feeder high tech industries (and jobs), is going under? What does it matter that other “inefficient” industries are being allowed (actually ‘encouraged’) to die? What does it matter that one of our
most progressive, high tech and potentially lucrative industry sectors – renewable energy – was actively sabotaged by the Abbott Government? What does it matter that the Abbott/Hockey snake-oil team talked down the economy at every opportunity for two years, to get the point across of how bad Labor are for the economy? The economy may now well be in decline (and that is of course Labor’s fault), but things have improved out of sight from when Labor were in government. And, since last week, now everyone’s especially positive about embracing the future.
Everything is different now. And it’s all the same, steady as she goes. (Are those rocks ahead?)
Well, at least Labor’s not in!
dave says
Renewable energy.. exactly. What a couple of idiots Tony and Joe were. Almost up there with Gillard. Why the hell are we not investing in renewable energy tech and training??? ohhh that’s right I almost forgot, the massive campaign contibutions and secret handshakes for our biggest poluters that hold us all to ransom.
grahame jackson says
It doesn’t matter which government is in they are all as short sighted as each other. Clever manufacturing ideas and tech have all head overseas for the last 30 years because nobody here is actually running the country properly. They are career politicians or ex lawyers, too worried about putting the other side down and keeping their jobs. I have watched as all the companies who made things here in Australia either shut up shop or moved operations overseas through a lack of investor confidence to support them. That’s the role of a good government to support investment right here in this country, simple. We will see if the new guys can make any difference instead of the usual talk fests. Im not going to hold my breath though as soon as the newspaper poles go bad we will have another crowd in repeating the same empty talk again??.
So a big thank you to Knowledge source for introducing me to San Antonio and the TEXAPLEX!! Australia could learn some real lessons from them.
KatM says
Banana republic indeed! Paul Keating told you so 25 years ago and Malcolm is all for a republic. Could we just wait until the Queen dies?
Isn’t it ironic that all the high tech mass products originate from either the countries that lost the WW2 or
the socialist pretender (secret colony) China? Our governments have been letting us down for a long time. Roll on tech revolution!
Mark says
So glad that you finally get it Jon!!
Now u see why i have been so concerned about our high house prices…
Go and re read every comment Ive ever made!!!!
Now do u get the next part?
The part about how with a softening economy, as a nation we get completely f***ed over because we get strangled with our current high debt load, that we have p****ed against the wall buying largely non-productive assets (resi housing!!) at inflated prices???????
Traveller says
There is no reason to let manufacturing die in Australia.
China has built its first fully automated robotic factory in Shenzhen, of all places, one of the powerhouses of the Chinese economy. Yet labour is cheap and plentiful in China (but not so in Shenzhen apparently). If China can do that why can’t we? We have the technology know-how to do it in spades!. While this may not mean more jobs, it does mean that profits don’t go overseas, a cheaper product is available locally made, and with the low (and falling) Aussie dollar gives export opportunities. We even have the opportunity to create new industries in this way.
Think outside the box.