More on Australia

All attention is on Australia today. What has been predicted is coming about - even mainstream media is saying it.

Australia's resource boom to decline?

Australia should prepare for a downslide in the country's resource boom, the country's leading economists say.

UPI,

12 July, 2012

Speaking at an economic conference in Melbourne Wednesday, Australian economist Max Corden, an expert in the hollowing out of economies with high currencies, urged the government to take steps to save more during the current resources boom.

"If you know there is going to be a big investment boom coming in the minerals sector, this is not the time to be having a big investment boom in the rest of the economy, whether private or public," Corden was quoted by The Age newspaper as saying.

Noting there's a "natural tendency" to think booms would continue forever, he stressed it is likely commodity prices would continue to fall.

National Australia Bank, in its latest business survey, said although mining was stimulating significant growth in Western Australia and far outpacing other industries, confidence within the sector was falling.

Australia's Minerals and Resources Rent tax, which applies to companies that mine iron ore, coal and petroleum and have an annual profit of more than $75 million, went into effect July 1. The government expects to earn $13.4 billion in the next three years from the tax.

After iron ore, coal is Australia's second most important export earner, with China the second largest market after Japan.

But Ross Garnaut, professor of economics at the Australian National University who served as Australia's ambassador to China from 1985 to 1988, warned China's demand for Australian coal could fall.

Coal use in China "has hardly increased at all" despite the growth in the economy, Garnaut said. "That is contributing to a surplus of coal in China and internationally, and putting big downward pressure on prices, with implications for Australia,'' he said, the Sydney Morning Herald reports.

Garnaut said Australia's economy was already "a long way" into the resources boom.

"We've got a lot of growth in the economy coming from a record level of business investment, which is overwhelmingly (in) the resources sector. Even if that stayed that high, it ceases to be the source of growth that it has been," Garnaut said.

Separately, a report on Australia's salaries by global management consulting firm Hay Group released this week says the mining boom in Western Australia was further widening the pay gap with the rest of the market.

Hay Group predicts a 6.3 percent salary increase for the resources sector, compared with 4 percent for the rest of Australian workers.

Australia Employers Cut Payrolls In June, Jobless Rate Rises

Australian employers unexpectedly reduced payrolls in June and the jobless rate rose, increasing speculation of a fifth interest-rate cut by the central bank in nine months as Europe’s clouded outlook restrains global growth.

Bloomberg,

12 July, 2012

The number of people employed fell by 27,000, led by a loss of full-time jobs and almost erasing a revised 27,800 job gain in May, the statistics bureau said in Sydney today. That compares with the median estimate for no change in a Bloomberg survey. The jobless rate rose for a second month, to 5.2 percent from 5.1 percent.

The number of full-time jobs declined by 33,500 in June, and part-time employment rose by 6,600.

The local currency dropped and the one-year bond yield fell to a record low as traders priced in a 78 percent chance the central would cut rates by a quarter-point next month. Today’s report highlighted the geographic division in the nation’s two- speed economy, with unemployment falling in the resource-rich states of Western Australia and Queensland and worsening in the financial and manufacturing centers of New South Wales, Victoria and South Australia.

“The stellar run of Australian data came to an end today,” said Michael Turner, an economist at RBC Capital Markets Ltd. in Sydney.

The Australian dollar dropped to $1.0193 at 1:18 p.m. in Sydney from $1.0239 before the data. The so-called Aussie, the world’s fifth-most traded currency, surged 5.2 percent in June. The one-year bond yield sank to 2.332 percent.

Full-Time Jobs

The number of full-time jobs declined by 33,500 last month, and part-time employment rose by 6,600, today’s report showed. Australia’s participation rate, a measure of the labor force in proportion to the population, dropped to 65.2 percent in June from a revised 65.4 percent a month earlier, it showed.

The data validate the Reserve Bank of Australia’s decision to reduce interest rates by a total of 75 basis points in May and June to 3.5 percent. It cut by a total of 50 basis points in November and December last year, citing a deteriorating global economy.

Europe’s crisis is starting to affect China, Australia’s biggest trading partner, and the central bank in Beijing has cut rates twice in the past month. Premier Wen Jiabao said last week that downward pressure on the economy is still “relatively large” and the government will intensify fine-tuning of policies, according to a report by the official Xinhua News Agency.

China’s Slowdown

China’s gross domestic product probably climbed 7.7 percent in the quarter through June from a year earlier, slowing from 8.1 percent in the previous period, according to a Bloomberg News survey before the data is released tomorrow. That would be the slowest pace since the three months ended March 31, 2009.

Today’s Australian data were released less than a week after a report showed American employers added fewer workers to payrolls than forecast in June and the jobless rate stayed at 8.2 percent as the economic outlook dimmed.

Australia’s jobs report showed unemployment in New South Wales, the country’s most populous state, rose to 5.1 percent from 5 percent, and climbed to 5.5 percent in Victoria and 6.4 percent in South Australia, two states reliant on manufacturing. It fell to 3.5 percent in Western Australia and to 5.3 percent from 5.7 percent in Queensland, states fueled by investment in iron ore, coal and natural gas.

Manufacturing Firings

Toyota Motor Corp. (7203) and General Motors Co. (GM) have fired workers in Australia this year, citing the strength of a currency fueled by the mining investment bonanza, while banks cut their payrolls as credit growth weakened.

Qantas Airways Ltd. (QAN), Australia’s largest carrier, said May 21 it will cut 500 jobs and consolidate heavy maintenance in two bases to pare costs as it contends with rising fuel prices and losses on international routes.

QR National Ltd. (QRN), Australia’s biggest haulage company, said in June it expects more than 500 redundancies as part of a restructuring.

Australia’s first-quarter gross domestic product advanced 1.3 percent from the previous three months, a government report showed last month. Compared with a year earlier, the economy expanded 4.3 percent, the fastest annual pace since the third quarter of 2007, the report showed.

“By the standards of the world we continue to have a low unemployment rate,” Prime Minister Julia Gillard told reporters today in Townsville, Queensland. Overseas leaders “would literally do anything to have the same economic story and statistics as Australia,” she said.

Dollar’s Strength

RBA Deputy Governor Philip Lowe said today the Australian dollar’s sustained strength has helped balance the nation’s economic expansion, and it’s difficult to argue that its level is unjustified.

“That’s been an important stabilizing influence in the economy,” he told a forum of economists in Sydney today before the jobs report. “The inflow of foreign capital into the bond market has, at the margin, pushed up the currency a bit. But at least where the currency is at the moment, I think it’s hard to make a strong case that it’s fundamentally overvalued.”

The so-called Aussie has soared as demand for the country’s iron ore and coal to fuel China and India’s urbanization sent prices for the commodities soaring. The RBA has kept rates higher than most other developed-world central banks to contain inflation spurred by the export income, further adding to the attractiveness of the currency