From the AFR:
Australia’s reliance on commodities and China as a key growth driver means some of its financial assets have been behaving more like emerging, rather than developed, markets of late.
Not only have moves in the Australian dollar become more aligned recently to the Chinese equity rollercoaster, but the Australian share market, too, has been behaving more like, say, the Santiago Bolsa.
This trend has been noted by a range of analysts, most recently UBS investment strategist David Cassidy.
Only months if not years behind. What did they think it meant when the powers that be said Australia was to undergo a structural adjustment to mining-led growth? And more from Alpha Beta Strategy and Economics, republished with permission:
Resource exports still tanking
Australia’s trade data released yesterday shows that our resources exports are in serious trouble. The news coverage has positively reported that our ‘trade deficit shrank in May’. But the lift in our exports this month was less than 1% and a blip compared to the shellacking our exports have received over the last 15 months. Our key minerals exports have plummeted 34 per cent since their peak – that’s a bigger fall than the GFC slump in 2008.
What will fill the gap?
As the resources tide goes out, the big question for Australia is: What will we fall back on? Unfortunately, during the mining boom, we allowed most of the rest of our export base to wither. As the chart below shows, our exports have gone backwards as a proportion of our economy over the last 15 years in almost every non-resources industry.*
The narrowest export base in 50 years
In 2000 less than one third of Australia’s exports came from resources, but today more than half is made up of just three commodities. IMF data shows that Australia’s exports are now more concentrated than they have been for more than 50 years.* We have the narrowest export base since the Korean War wool boom in the 1950s.
Is Australia still a developed country?
Our extreme dependence on bulk commodities is almost unique among advanced economies. Before the boom, Australia’s export concentration was broadly in line with other similar high income countries. But by 2010 our export concentration had soared. Today our exports are more concentrated than the average of even the middle income countries. And even some low income countries like Nepal, Kenya, and Tanzania have greater export diversity than Australia.
What is to be done?
Australia needs stronger economic policy. Over the last decade our economy was underpinned by a temporary boom in commodity prices and an unsustainable rise in public and private leverage. We have allowed ourselves to become seriously indebted, dangerously exposed to commodity prices and stuck in a rut of low domestic growth and falling export prices.
For a decade, Australian governments have been operating on the assumption that, once the mining boom passed, low interest rates and a falling dollar would be enough to bring the non-resource sectors dancing out of their graves. Unfortunately, no such resurrection is occurring.
As the report we release today explains, many countries are using industry policy to re-balance and re-energise their economies. But in Australia industry policy, as the Productivity Commission reminded us last week, is regarded by many as economic heresy.*
Our report argues that industry policy can be effective, but it must be guided by practical experience of what works to help business flourish, not the result of a messy compromise between rent-seekers and purist bureaucrats.
Click here to read the AlphaBeta report: Rethinking Industry Policy: Seven rules for pro-competitive, pro-globalisation industry policy