For most of the time, we all thought that Australia is going to be the new economic frontier. However, such is not so as the Australian economy is showing worrisome signs that it is going to face a tailspin which will put it in the direction of both a recession and an economic meltdown. The dependence on services and the removal of manufacturing, coupled with the massive outsourcing which the U.S.A once did in the mid 2000’s is now putting Australia in a precarious position, on which the Australians are in denial and are somewhat defiant that such is not so. Despite the fact that manufacturing has still maintained presence in New South Wales, The shutdowns of the Toyota, Ford and Holden automotive plants as well as Mitsubishi’s plant shutdown in 2008 has hurt the Australian economy far more than anyone can imagine. Also, relying on imports from Thailand, China, India, U.S.A and other nations is definitely going to strain Australia’s finances and also cause political instability in Australia.
The theories and concepts of business process outsourcing and engineering in the U.S.A have been quashed, with thanks to Donald Trump’s protectionist and nationalist policies that have not only rebounded and restored American manufacturing but have also taken suit in Europe as well as Africa and certain Asian nations. India is benefiting from a strong manufacturing base for both domestic and international consumption which has made its economic base stronger. Despite China having billions in its treasury, excessive mining has damaged its landscape and rivers, where carcinogenic metals have leaked into river waters thus producing polluted fish, sinkholes, cancers in villagers and cancers in agricultural produce. Moreover, with dozens of Chinese export goods like vegetables, meat, rice and other things banned and blacklisted by most O.E.C.D nations, China is officially in deep trouble.
When it comes to Thailand, they have benefited from a previously strong base and are benefiting from a rising auto industry that earns billions and even trillions! Mitsubishi, Ford and Toyota were given entries but on the basis of joint ventures, with shared research and development and controlled industrial expansion which will now give Thailand an even improved base for starting its own companies in automotive industry (Vehicles, Parts, Equipment) as well as shipbuilding and other manufacturing sectors, and that too with less pollution. Being environmentally and economically responsible, Thailand has invested in all sectors of the economy, from education and healthcare to tourism. With the Australian Dollar falling, its time for Australia to realize its mistake and fix its struggling economy.
The following graphs will help indicate Australia’s so called economic miracle and how it is tumbling down
Number of quarters the aforementioned economies endured without a recession since 1991
Australia’s commodity exports (Mineral and Fuel) as well as prices of Iron Ore and Coal per metric ton
The Australian Net Disposable Income has risen
So did the wage rates til some time but the hourly pay has fallen, and is further decreasing to concerning extent
Taking housing prices as a multiple of Annual Income, Australia has the most expensive housing market in the Anglosphere, the Southern Hemisphere and in the world as well as O.E.C.D nations
Whats even more concerning is that the Australian household debt levels are rising each passing day, and are not stopping! They are continuously rising which indicate Australia will default on its debt in the future
Australia is now relying on exporting services to save the balance of payments, which is certainly not possible. For that, Australia must restore manufacturing and export manufactured goods.
The problem lies in the policies of the Australian Government. The ambigious statuses of Rio Tinto mining corporation and BHP Billiton should raise alarms. They label themselves as multinationals, but with 2 headquarters (i.e. Melbourne and London for both) they both should be paying taxes in Australia and the United Kingdom but sadly, they just evaded Australian taxes whilst earning millions and billions off commodity exploration, mining, refining and export of minerals and even petroleum. Even if they are paying taxes in Australia, how come the British economy is ahead of the Australian economy? even after Brexit?
In 1991, Australia emerged from a recession, unemployment peaking at 11.1% and price of Iron Ore languishing at USD$15 per metric ton. John Howard, the leader of the consecutive party becomes Prime Minister in 1996 and decides to privatize state companies and reduce government spending resulting in strong export growth, stable Australian Dollar, good value of earnings coming from exports of both minerals and goods and manufacturing sector receiving good strength and investment. In the year 2001, Billiton plc of the United Kingdom agreed to merge with BHP of Australia, resulting in merger of two of the world’s largest iron ore producers. Two years later, China’s economy grows at an annual rate of 10 percent, giving a golden opportunity for BHP Billiton to earn billions from the export and sale of Iron Ore to China and Chinese businesses & Corporations, thereby making Australia a commodity strongman. 4 years later, in 2007, Kevin Rudd, a former Mandarin speaking diplomat who spent his formative years in poverty apologized to Aborigines and Torres Strait Islanders for the way they were treated and promised closer relations with People’s Republic of China, which then give Australian businesses and corporations, leverages for outsourcing business processes to China and other nations in Asia.
However, a year later, the Global Financial Crisis appears, risking thousands of jobs and businesses, sending commodity prices spiraling downwards and BHP Billiton deciding not to acquire Rio Tinto thus ending BHP Billiton’s 18 month pursuit. Commodity prices rebounded in the year 2009, with Chevron approving the USD$ 37 billion Gorgon offshore natural gas project resulting in the Australian Dollar achieving parity with the U.S Dollar. In 2011, Iron Ore was priced at USD$190 per metric ton, and mining workers earning more than AUD$ 175,000 annually just for digging, excavating, running drills and transporting the ore. Laid off workers from the manufacturing sector eventually found work as miners in Australia’s booming mining sector. The strong value of the Australian Dollar at that time did not place much emphasis on investing in manufacturing, rather mining giants were enjoying billion dollar earnings from export of Iron Ore, Gold and other commodities to China and other industrial powerhouses of that time. However, in 2012, this scene took an unprecedented U-Turn when Fortescue Metals Group announced cost cuts, lay offs, roll over of company funded barbecues as well as reduction in mining operations which spell the end of the mining boom and the start of the devaluation of the Australian Dollar.
2013 was a worrisome year as Holden’s parent company General Motors announced the ceasing of production in Australia within a few years. Conservative Politician Tony Abbott became Prime Minister while Governor of the Australian Central Bank Glenn Stevens warned against relying too much on mining again and called for restoring manufacturing, citing reasons such as an unprecedented massive economic downturn and default. in 2015, the price of Iron Ore fell down to USD$ 37 per metric ton, which then plummets salaries in mining, leading to Liberal politician Malcolm Turnbull ousting Tony Abbott, with Turnbull promising to diversify the Australian economy. in 2016, economic indicators show Australia entering deflation and Malcolm Turnbull surviving the 2016 elections by a narrow margin, leaving his Government in a fragile position.
Apart from that, with Uber threatening to take over the Australian taxi sector, various municipalities planned on giving AUD$ 125,000 per taxi driver as golden handshake term deposits but that was overturned with massive protests from municipal taxi drivers and economists as well as the general public alike, who argued that not only will this further raise debt levels but also leave thousands unemployed. Furthermore, Uber’s cost mechanisms were revealed to be shady and Uber has been banned in many countries across the globe.
Australia is now earning from Higher education, seeing an influx of many foreign students, Tourism; generating millions from Chinese and other western tourists as well as high end defense and biotech manufacturing; which is facing challenges from high wages and low competitiveness. Furthermore, with the Chinese economy falling into recession, Australia looks more likely to fall into recession, political instability becoming visible and the housing bubble is also more likely to blow, sending housing prices even lower than that of the U.S.A, Canada and Hong Kong.
With Holden now taken over by PSA of France and more likely to be produced outside of Australia, coupled with the shutdown of Ford Australia’s and Toyota’s manufacturing plants in the state of Victoria, the Australian is officially in trouble. Though Aircraft parts are being manufactured in South Australia, the Australian economy is in trouble and now it needs to reorganize itself and bring manufacturing back or else, it will go down as among the worst affected economies ever.