Bloomberg News

Soaring Aussie Sends Factory Orders to Austria: Howes

March 29, 2012

Paul Howes, national secretary of the Australian Workers Union, is a power broker in the ruling Labor Party and the youngest person to become a union national secretary when he was elected in 2007. Photographer: Ian Waldie/Bloomberg

Paul Howes, national secretary of the Australian Workers Union, is a power broker in the ruling Labor Party and the youngest person to become a union national secretary when he was elected in 2007. Photographer: Ian Waldie/Bloomberg

The Australian currency’s sustained strength makes it cheaper to produce goods in Austria, home of the fastest-rising labor costs among developed European economies, than in Sydney, said Paul Howes of the Australian Workers Union.

The local dollar’s advance “has made it essentially impossible for any of our non-resource, trade-exposed sections of the economy to be profitable,” Howes, national secretary of the AWU, said in an interview in Sydney today. “When it’s now cheaper to manufacture in Europe and it’s cheaper to manufacture in North America, something has really gone wrong.”

The so-called Aussie climbed more than 50 percent against the euro over the past three years, the most among more than 150 currencies tracked by Bloomberg, and reached a record 0.8242 euro Feb. 7. Investors have poured into the Aussie, driving it up 53 percent against the U.S. dollar since early 2009, in response to a higher benchmark interest rates and to bet on Chinese growth.

Howes, 30, a power broker in the ruling Labor Party and the youngest person to become a union national secretary when he was elected in 2007, recounted a meeting this month with the chief executive officer of a major manufacturer that had lost one of its most significant contracts to make consumer goods to Austria.

“This is crazy,” said Howes, noting that even with Austria’s high level of unionization, government regulation and wages, it’s still cheaper to transport goods from the landlocked country to a port in Amsterdam and ship them to Sydney than to produce in Australia. “If we lost to Thailand or we lost to China I could understand, I can rationalize that.”

Borrowing Costs

The local currency has remained elevated as the Reserve Bank of Australia maintains the highest benchmark rate of major developed economies. Deputy Governor Philip Lowe said this month the RBA’s threshold for intervening in the local dollar is “quite high” as officials monitor its impact on the job market.

“I don’t know anyone in business, or any parts of the economy, that actually think we have the right setting on interest rates at the moment,” said Howes, whose organization of more than 135,000 members is the country’s largest industrial union. “It is putting upwards pressure on the dollar.”

Investors are pricing in a 45 percent chance the RBA will lower borrowing costs when it meets next week, a Credit Suisse Group AG index shows. The currency soared to a six-month high of $1.0845 after policy makers unexpectedly kept rates unchanged at 4.25 percent Feb. 7. They also held borrowing costs this month.

“If the currency doesn’t change we will see more job losses,” Howes said.

Two-Speed Economy

The two-speed nature of the economy was reflected in the loss of 15,400 jobs in February and the first increase in the jobless rate since August. The southern states of Victoria and South Australia, centers of the manufacturing industry, lost a combined 16,400 positions. Gains were led by Western Australia, the center of the mining boom, with the state adding 3,400 jobs.

Australia’s economy is driven by a resource bonanza predicted to last decades as the urbanization of hundreds of millions of people in China and India increases demand for iron ore, coal and liquefied natural gas.

“A booming, out-of-control resources sector is not in our national interest,” Howes said, citing deep recessions that followed past resource booms. “We have this kind of myth about resources in this country. Sure it’s generated enormous wealth and it’s a great thing. But a boom like this isn’t healthy.”

‘Massive Challenges’

Howes, who helped topple former leader Kevin Rudd in 2010 and install Julia Gillard as the nation’s first female prime minister, acknowledged the her government is struggling. The Labor party trails the opposition Liberal-National coalition by 19 percentage points, according to the latest Newspoll.

“We have massive challenges,” he said, while noting it’s traditional for Labor to suffer heavy defeats as it tries to engage in reform. She faces an election in the next 18 months, and her party was voted out of power in Queensland state last weekend.

Gillard’s “got amazing tenacity and I do think she’s one of the greatest leaders Labor will ever have,” Howes said, citing her ability to deliver reforms while leading a minority government. “Whatever happens at the next election, I do know this: History will treat Julia Gillard very well.”

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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