Monday, July 13, 2015
Every smarty knows that the economic turmoil in Greece and China must spell bad news for us, so when the turmoil caused the Aussie dollar to fall below US75¢, this was obviously the start of the badness.
Apparently, it means the "global purchasing power" of Australian households has fallen. Who knew?
Immediately, our ever-vigilant media sprang into action to determine which purchases were likely to be more expensive. Don't you love the way the media can find the downside in any piece of economic news?
The fact that for months the nation's macro-economists and many of our business people have had their tongues hanging out, thirsting after a lower exchange rate, was something no one considered worth mentioning.
Nor that Reserve Bank governor Glenn Stevens' wish to see the dollar fall to US75¢ had finally come true.
It's true that if you view the position solely from the perspective of consumers, a higher dollar is good news and a lower dollar is bad.
However, from the perspective of Australia's trade-exposed industries and their employees, it's the other way around.
A high dollar means you get fewer Aussie dollars for anything you export, whereas the imports you compete against in the local market are now cheaper than they were.
So a higher dollar means Australian tradeable industries suffer a loss of international price competitiveness, which almost always leads to them reducing their production and their job opportunities.
In other words, a higher dollar has a contractionary effect on economic activity (which at least has the advantage of reducing inflation pressure). And that's been our story since the mining boom caused the Aussie to appreciate so strongly.
However, with mineral commodity prices having been falling since mid-2011 and mining construction projects winding up since the end of 2012, the dollar finally began falling back; though, thanks to the advanced economies' resort to "quantitative easing" (creating money), not by as much as the fall in commodity prices implied should happen.
It follows that a lower dollar has an expansionary effect on economic activity. Since our exporters now get more Aussie cents for each US dollar they earn, they're able to export more. And, since imports are now more expensive to their domestic customers, they're able to recapture a larger share of the local market.
The consequence is that our tradeable industries increase their production and the job opportunities they provide.
In our attempts to explain why relatively strong growth in employment – particularly since the start of this year – has caused the official unemployment rate to stay steady at 6 per cent, you'd have to give the lower dollar a fair bit of the credit.
That's particularly evident in the strong growth in employment in the services sector and in exports of services. Historically, services were regarded as non-tradeable, but globalisation and advances in transportation, telecommunications and digitisation are making that less true every year.
The tradeable services sector's improved price competitiveness comes at a time when Asia's middle-class is growing in size and income, with its consumption preferences shifting towards Western goods, services and destinations.
No service industry better demonstrates the lower dollar's beneficial effect on production and jobs than tourism: an industry where import replacement is just as important as exporting. The lower dollar not only attracts more foreigner visitors, it encourages Australians to holiday at home rather than abroad.
Estimates from Paul Bloxham, of HSBC bank, show spending on tourism accounts for about 3 per cent of gross domestic product, with about a third of this coming from foreign tourists.
The industry employs more than 500,000 people.
Overall, the value of tourism exports reached $14 billion in 2014, up 8 per cent. Tourist arrivals from China over the year to May were up 21 per cent on the previous year, Bloxham says. Chinese visits to Oz have increased to 920,000 over the past year, up from 370,000 five years ago.
Turning to education exports, Bloxham says international student enrolments reached a new high of almost 147,000 at the start of this year. Last year, the value of education exports reached $17 billion, surpassing the previous record in 2009.
And Joe Hockey has reminded us that the value of all services exports over the year to March was up 8 per cent, their fastest growth since 2007.
So if the fallout from the present international turmoil involves further falls in the Aussie, don't let anyone tell you it's a bad thing.