With world's worst stock collapse, Australia looks for global action
When Bloomingdales's cuts back on orders for Italian wool suits, Australian sheep farmer George Mack eventually feels the pinch. And right now, Mr. Mack - indeed many Australian firms - are keeping a wary eye on economic developments abroad. Despite diversification, 80 to 85 percent of what Aussies ship overseas are raw materials. After coal (which goes primarily to Japan), wool is Australia's second biggest export.
Commodities are a dandy business to be in when the factories in the United States, Asia, and Europe are chugging along briskly. But the global stock market plunge has shaken confidence in these industrial economic engines. And countries with resource-based economies, such as Australia, are concerned.
``The consensus is that world economic growth will throttle back [from about 3 percent] to 1 to 2 percent. That's tolerable,'' allows Alan Harmer, director of research at the brokerage firm of Bache, Cortis & Carr in Melbourne. ``But it means Australia, which was looking for 2 percent this year, and 3 percent next, will probably only see about 1 percent growth.''
This prognosis has been reflected in the collapse of the Australian stock market. The All Ordinaries index has fallen more than any other major world market - shaving as much as 51 percent off its September high. Likewise, the Australian dollar has taken a beating, tumbling about 8 percent against foreign currencies. Commodity prices have slipped too, but not so dramatically. The State Bank of Victoria reports only a 3 percent drop (on a US dollar basis) in its index of 12 major commodities between Oct. 14 to Oct. 28.
Much to shepherd George Mack's delight, wool prices have actually risen recently due to supply shortages. But he allows, ``A bit of liquidity now might not be a bad thing.''
Prime Minister Robert Hawke's Labor government has acknowledged the slower growth prospects but so far has resisted calls for an austerity budget or any major economic policy shift. And it's endorsing the Australian Council of Trade Unions' national plan for a 1.5 percent weekly pay raise. But if the economy deteriorates, the administration says it may tighten up the purse strings next year.
Meanwhile, Treasurer Paul Keating has joined the world chorus of criticism aimed at US economic policy. And a nationwide poll shows 71 percent of Australians say US policies are to blame for the market plunge.
``The world economy is suffering from tremendous trade imbalances between the United States, Japan, and West Germany,'' explains Andrew Jilkes, a Syndey economist. The prevailing theory is that the US needs to trim its budget deficit, which will slow its growth. ``To fix the trade imbalance, Germany and Japan need to develop more expansive economic policies to compensate for US belt tightening,'' says Mr. Jilkes.
Peter Smith, chief economist at State Bank of Victoria says it'll take more than US belt tightening. He believes the solution lies in more cooperation between the major industrial countries, an opening up of the Japanese market, and an aggressive restructuring of US, European, and Japanese economies.