Contributed by Joe Montero
According to a recent article in the Australian Financial Review Weekend, unpublished figures from the Australian Bureau of Statistics in its hands, show non-mining business investment is languishing well below its average of the past 16 years, which is around $55.8 billion in today’s dollars. In other words, big investors are pulling back on putting their money into Australia’s growth.
Mining is also going backwards, although not at the same rate of the non-mining sector, meaning that we remain too dependent on its exports to keep the economy safe if the situation should go pear shaped.
More telling still, is that a major proportion of the non-mining sector is the finance industry. Although the banks and other major financial institutions are far from being in deep trouble at the present, they are thoroughly enmeshed in global in global financial flows, in the context of an increasingly uncertain global system.
All the more worrying is that the federal government has cut back on infrastructure spending. In 2014, the promise was $50 billion worth of infrastructure. It has been cut down to $42 billion, according to documents provided by the Department of Infrastructure and Regional Development to a Senate Committee. And of this expenditure, a greater proportion is devoted to supporting mining companies. Where the money is targeted is as important as the quantity.
A basic of economic management is that the conditions of today are where a government should step in with more spending, to provide the best conditions for the rise of new industries and protect the nation from the real possibility of economic shocks.
The precariousness of the global economy has been lifted to another level by the arrival of the Trump administration in Washington. The new regime’s geopolitics points in the direction of a looming trade war. Our excessive dependence on foreign investment and mining exports means that Australia will lose out. One would think that this would be enough to prompt a major review. So far, there is complete silence in Canberra.
A trade war will have two major impacts. It will make the financial system significantly less stable, as investors pull out their money, fleeing from the imposition of trade restrictions and the counter measures from the other side. The demand for Australia’s mining exports will fall sharply and there is nothing to fill this whole and it will be felt through the whole economy.
It is no secret that the target of trade war will be China. China is Australia’s number one export destination and the loss of this market will hurt. Australia continuing an all the way with the USA policy, will make this more certain.
Fate is not written in stone. Acting to protect against the risk just requires a measure of forward thinking. Infrastructure building must be given greater priority. It should also be targeted to improve communication, transport, energy, education and research and development, feeding a shift to sustainable industries and technologies. Doing this would provide an engine for growth and this would offer a level of protection to external shocks.
The difficulty is that this involves a different mindset to the one the Australian government is locked into. Innovative thinking and action is unlikely to come from there, so long as the prime directive is to feed the demands of corporations that like it just the way it is.
The chart below shows what is intended for 2017 and it is not what is needed.