Australians trudge back to work today after their 221st anniversary holiday. Or not. Even the lucky country is retrenching. Whole mining towns are shutting up.
As the rich world reverses down its debt mountain, taking the developing world with it, Australia is being driven off its lofty coal and mineral prices uplands. Rio Tinto and BHP Billiton are between them shedding 20,000 jobs.
Australia is still astonishingly blessed. Make no bones about that. It is still staggeringly rich. Make no bones about that. But when the world takes its lumps, Australia has to take some lumps, too — and, in turn, so do we. Here’s a partial roll-call of recent dismal international news.
China, which some economists had imagined to be “decoupled” from the rich world and thus an insurance against widespread recession, slowed to an annual rate of 7 per cent growth in the December quarter from this decade’s double-digit growth rates. With thousands of factories closing and needing far less of Australia’s coal and minerals, it is trying to bid prices down.
Japan’s exports were down a record 35 per cent in December from December 2007, including, notably and ominously, to the four Asian tigers, Hong Kong, Singapore, South Korea and Taiwan.
Among those tigers, South Korea’s economy contracted 3.4 per cent in the December quarter compared with December 2007. Singapore’s economy, which some here admire as a model, shrank 4 per cent in the December quarter and the government has forecast a 2 to 5 per cent decline this year.
Ireland, another economy touted often as a model for us, has serious housing and banking busts, soaring unemployment and a budget deficit heading over 10 per cent of GDP. Its economy is forecast to shrink 5 per cent this year. Along with Portugal, Spain and Greece, Ireland has been downgraded by rating agencies.
Industrial production in the euro area fell 1.6 per cent in November alone, reflecting the fact of that zone’s recession. Unemployment is 9 per cent.
Britain last week announced a second bailout of its banks — in essence, a part-nationalisation. The total bailout cost might top $1 trillion. The budget deficit might get close 10 per cent of GDP.
Each month, the worst you heard last month gets worse. The numbers being fed into the complex computer-generated models economic forecasters rely on are giving the models indigestion. So the numbers the models are producing are not so much predictions as markers of a slide.
One problem is wild commodity price swings. Oil dropped by two-thirds in the last half of 2008. According to The Economist’s commodities index, metals in mid-January were down by more than half on a year ago.
Hence Australia’s travails. It was supposed to escape recession but the housing market has tanked and consumer spending has plunged — a $A10 billion government support package appears to have had some moderating effect but has not stopped five retail chains closing or going into receivership.
So Prime Minister Kevin Rudd has turned banker. I say Kevin Rudd because the word from Canberra is that rescue policy is being driven largely from his office, with the major economic agencies, and Treasurer Wayne Swan, looking on.
On Friday Rudd put up $A2 billion to match $A2 billion from the banks to refinance commercial property developers building offices, shopping malls and the like — with up to another $A26 billion available by way of government-guaranteed debt.
The aim is to forestall the sacking of potentially a third of the construction sector’s 150,000 jobs and widespread damage to small businesses. Rudd is also expected to announce a plan to pay wages and training costs for workers forced to take unpaid leave or work part-time.
Before you get smug about Australia, think about the flow-on here.
Mining and other layoffs might well send fortune-hunters back here looking for work or the dole. Having privatised their profits in Australia, which got their taxes, they will socialise their losses here: your taxes will pay for their hard times.
Australia in trouble also costs jobs here. Australia is the biggest market for exports, most of them in manufacturing. It is the biggest source of tourists. New Zealand gets rich on a rich Australia.
All of which puts serious heat on John Key and his new cabinet. Next week he aims to announce some measures to shore up small and medium enterprises and jobs. Tax delays and keeping apprentices in jobs with government help are two options. This foretastes his “jobs summit” on February 27.
Key’s problem is that, like the economist with their models, he can’t know, because nobody knows, how deep and long the recession will be.
His bigger problem is that he can’t fix the world. Neo-Keynesian policies can tide companies and workers through a local recession. But not through a world recession. It is too big.
Lucky Australia is finding that out. So spare a thought for Australians losing jobs. By doing so you spare a thought for yourself.