CANBERRA: Australia’s export concentration is posing an existential threat to its economy, according to a leading trade economist. Andrew Charlton, former senior economic adviser to the Australian government and director at AlphaBeta advisers, a consultancy, compares the local economic structure to that of an impoverished nation, such as Bolivia, Botswana or Peru.
In the decade-long commodity price boom, which saw China consume the vast majority of Australian minerals such as iron ore and coal, the country became not just one of the wealthiest in the world, but experienced one of the most spectacular spikes in wealth in the history of civilisation.
However, successive governments pursued a strategy of further concentrating the exports base in favour of these sectors, in the hope that the boom would last forever. The past year has shown the folly of such thinking. In the decade to 2015, Australian commodities averaged growth of 310% – a truly remarkable ascension, the likes of which have not been seen since the gold rush of the mid 19th century.
The Chinese government was investing 47% of its GDP in infrastructure projects in 2010. China’s expenditure was, according to Charlton, “capital expenditure on a scale the world has never seen”. In the years from 2011 to 2013, China used more cement than the United States used in the entire 20th century. This unprecedented expansion was complementary to Australia’s strengths and the country’s resource exports grew from 30% of the total trade basket in 2000 to 52% in 2015.
However, the fall away in China’s domestic investment has stopped the growth in its tracks. By 2020 that figure will have fallen to 39% – still a large figure by any government’s reckoning, but a huge decline nonetheless. For every 1% decrease in China’s investment ratio, Australia will lose 0.2% of its GDP growth.
Australian commodity prices have fallen by 57% over the past two years, while its terms of trade – the amount of import goods an economy can purchase per unit of export goods – have fallen by 32%. The slide in the value of the Australian dollar plays into this scenario, but the main culprit is the decline in China.
