Australian companies should adapt to the local dollar’s strength and boost efficiency to survive, allowing labor and capital to move to the most productive parts of the economy, Treasury official David Gruen said.
“Pressure on profitability can provide a strong impetus” to improve business models, Gruen, executive director of the Treasury’s macroeconomic group, said in the text of a speech in Melbourne today. “Part of the challenge is to allow the pressure currently facing firms in many parts of the economy, due to the high exchange rate and other forces, to encourage the take-up of new technologies and work practices, and to allow resources to move to more productive uses.”
Australia’s currency has appreciated about 80 percent in the past decade as Chinese demand spurred prices for coal and iron ore, the nation’s key commodity exports, and fueled a resource-investment boom. The surge in the terms of trade, a measure of export prices relative to import prices, has added 1.2 percentage points per year to growth in average incomes since the turn of the century, Gruen said.
“The gains in Australian living standards of the past decade were more easily achieved than in the 1990s, but they were achieved in ways that cannot be replicated,” he told a forum of economists. “The gains of the next decade will rely overwhelmingly on improvements in productivity.”
Australian management practices are “well below” top performers such as the U.S., Germany, Sweden, Japan and Canada, Gruen said, citing a global survey. The nation is closer to France, Italy and the U.K. at present, he said.
Australia’s multifactor productivity -- the output produced from a bundle of labor and capital inputs -- has “scarcely grown” this decade, Gruen said. While the deterioration in performance is partly due to unusual developments in mining and utilities, the slowdown from the 1990s is evident across most industries, he said.
Gruen’s comments echo statements from the Reserve Bank of Australia, where officials including Governor Glenn Stevens have said the nation needs to boost productivity to increase living standards and maintain low inflation. The central bank cut its benchmark interest rate by a total of 75 basis points in May and June to 3.5 percent before keeping borrowing costs unchanged this month.
A separate survey released today showed Australian workers will earn more this year than counterparts in the developed world. The Hay Group’s 2012 Australian Salary Movement Index report forecasts salary increases of 4 percent for all industries in Australia and 6.3 percent for the resources sector -- ahead of the 3 percent forecast rises in the U.S., U.K. and New Zealand.
To contact the reporter on this story: Michael Heath in Sydney at email@example.com
To contact the editor responsible for this story: Stephanie Phang at firstname.lastname@example.org