A pleasant surprise this morning when perusing the AFR, from Max Walsh:
Ten green bottles . . .
Well, not quite 10. But GrainCorp, Holden, Qantas, Electrolux and Elders make an uncomfortable start to the list of Australians likely to fall off the wall, either closing down or selling out to foreign interests.
These iconic Australian brands have been in the firing line even though there is still a fair stimulus coming through the economy from the billions of dollars being poured into the development of a liquid gas export industry.
They do not need to wait around to be told that our great economic boom, the biggest resources rush in our history, is rapidly running out of breath.
As one blogger noted yesterday, the Australia Disease will be one for the textbooks. Curiously, the one sector of the economy that did not see this coming was the national political elite.
…The green bottles nominated above have already felt the impact of Australia’s exposure to an overvalued exchange rate, which renders us non-competitive in the global market place.
The high exchange rate is primarily a function of the China-based resources boom that is now running out of steam. It has enough momentum to carry us through 2014, but then it will hit the fence. Before the boom, mining investment was running at between 2 per cent and 3 per cent of GDP. With the boom it has climbed to between 7 per cent to 8 per cent.
But the investment boom is a once-only occurrence. The money has gone into increasing the capacity of our major resources such as iron ore, coal and liquefied natural gas.
With China’s demand tapering off as that economy takes on the challenge of structural change, of becoming a consumer-growth-based economy rather than one driven by investment and exports, there is now considerable excess capacity in the coal and iron ore sectors. Normally, these early warning signs would have been reflected in an exchange rate falling quite rapidly.
Instead, it is edging down only slowly because our relatively high interest rate encourages speculative capital inflows.
The high exchange rate dictates a wage structure across the economy that prices us out of export markets.
Australia now has one of the smallest manufacturing sectors of any developed country. Much of our traditional manufacturing has moved offshore to lower wage economies.
The MB message spreads…
