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April 23rd, 2013 
Peter Nolan
Updated
Industry leaders are crying out for help as the high Australian dollar causes growing anxiety across the economy, with analysts expecting it to remain above parity for the next couple of years.
Many manufacturers and exporters say the strength of the dollar is putting Australia at a strong disadvantage to trading rivals, as imported goods flood into the country at far cheaper prices than they can be produced locally.
Some are calling for help from the Reserve Bank, fearing local industries will be left decimated by the time the mining boom fades.
Tony Weber from the Federal Chamber of Automotive Industries says the longer the dollar stays stubbornly high, the more damage it will do to trade-exposed industries like agriculture, services, mining and manufacturing.
“If we cannot get market access to other countries because of the value of our dollar or we cannot compete in our domestic market because of the value of our dollar, we have grave concerns that there could be a hollowing out of the economy,” he said.
“And when the dollar depreciates, when the resources boom drops off in the future, we will not have the industry structure that we have today.”
The car industry has been particularly hard hit.
The high dollar was cited by Holden as a major factor in its recent decision to cut 400 jobs from its Adelaide plant, and also by Ford in its decision to cut hundreds of jobs in Victoria late last year.
Cheaper Asian and European cars continue to flood the market as the value of their home countries’ currencies fall by comparison.
“A car that was imported into this country and left at a dock at $20,000 six months ago today can be imported into the same dock, exactly the same car, at $15,000,” Mr Weber said.
Ford worker Brendon Sexton says the Australian industry is “just not cheap enough to compete anymore”.
Mr Sexton has worked for Ford for more than 25 years.
He says the increasing sense of insecurity for him and his colleagues is palpable.
“I do feel sorry for the younger guys in the plant. They’ve got a mortgage, wife, couple of kids. It’s a hard ask to keep on struggling through,” he said.
“They’d like some security to know where they are. They’re uncertain about where their job futures are, whether they’re going to have a job in a couple of years or not.”
When the dollar depreciates when the resources boom drops off in the future, we will not have the industry structure that we have today.
It is a fear exacerbated by a recent forecast from BHP chairman and former Ford International president Jac Nasser, that if the contraction of the local auto industry continues its collapse seems more than likely.
“It would be a very sad day for Australia but unfortunately it looks like it could be inevitable,” he said
Mr Weber says if industries like automotive manufacturing leave Australia, it is unlikely they will ever come back.
Capping the dollar
Amid such growing alarm, the call for a rescue remedy grows louder.
The dollar’s value is being inflated by Australia’s economic strength and relatively high interest rates, plus huge inflows of foreign investment to fund major infrastructure for the resources boom.
Simultaneously, Australia is caught in the grip of what some describe as a currency war, as trading partners like Japan, China, Europe and the US print mountains of money in a bid to stimulate their economies.
Leading economist and former government adviser Professor Ross Garnaut has joined the chorus of those in agriculture and manufacturing calling for the Reserve Bank to intervene by capping the dollar.
“This would involve cutting interest rates and buying large quantities of foreign currency to deflate our own,” he said.
It is a controversial idea which many, like economist Saul Eslake, disagree with.
“Much as I have enormous respect for Professor Garnaut and for that matter Professor Warwick McKibbin who was making the same suggestion last year, I don’t agree with either of them,” Mr Eslake said.
“I think it may well not work, would expose the Reserve Bank to considerable capital loss if it doesn’t work, and would cost the Reserve Bank an enormous amount to implement even if it did actually work.”
The Australian dollar was floated by the Hawke government in December 1983 to improve the efficiency of Australian industry.
The dollar’s rise has forced local producers to grow more productive and competitive.
This has been a boon for consumers delivering greater choice and cheaper prices through imports.
Free marketeers believe any attempt to cap the free-floating dollar now by cutting interest rates would only deflate the high dollar temporarily before inevitably inflation – and the housing market getting out of control.
“I don’t think anyone in Australia really wants to see higher inflation or higher interest rates as a by-product of an attempt to cap the exchange rate, and the other risk we might conceivably run would be reigniting a housing bubble,” Mr Eslake said.
‘Frightening prospect’
When the present mining and investment boom ends, which I think will be sometime in 2015-16, at that time in my view the currency could fall a lot – the persistent strength of the exchange rate would then be the least of our problems.
Mr Weber says time is ticking.
“We need to have a full debate that understands the consequences if the dollar remains high,” he said.
“Without that debate if we just move forward, I’m frightened about what will happen to the Australian economy.”
Mr Eslake predicts a dramatic fall in the dollar once the mining boom ends.
“When the present mining and investment boom ends, which I think will be sometime in 2015-16, at that time in my view the currency could fall a lot – the persistent strength of the exchange rate would then be the least of our problems,” he said.
Which leaves auto workers like Mr Sexton and his mates wondering whether the auto industry will still be alive and kicking.
“If it goes under you’d be surprised how far the flow-on effect for thousands of jobs is mind-boggling,” he said.
“It’s not just Ford motor company, it’s car components here, there, it’s little engineering shops across the state – you’d be surprised how far the car industry stretches.”
But for some, the solution in the long term is less about saving old industries than creating new ones.
“People might have wondered 100 years ago how we would have survived without a third of the workforce in agriculture, yet somehow we’ve managed to do it,” Mr Eslake said.
“And I have no doubt, although the process of getting there would be uncomfortable for some, and I’m not advocating that we do without a car industry, if it so happened that car manufacturers thought it was no longer profitable to operate here, we would survive that.”
Topics:
economic-trends,
automotive,
industry,
currency,
federal-government,
money-and-monetary-policy,
business-economics-and-finance,
manufacturing,
trade,
australia
First posted
Source Article from http://www.abc.net.au/news/2013-04-23/high-aussie-dollar-730/4647220
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