By Allen Myers
"If you look at the broad sweep ... you see a steady, inexorable strengthening of the foundations of the Australian economy and an economy that is standing up very well to the turmoil that is occurring in our part of the world." The idea that Australia could largely escape the effects of the Asian economic crisis was still the line being pushed by Prime Minister John Howard as recently as February 4. It was more or less the last gap of such rosy official optimism.
Less than a week later, treasurer Peter Costello was warning of a "big impact". "We haven't seen anything like this before in our lifetime", he said.
Just how big the impact will be is still anybody's guess, but the government and its bureaucracy remain more optimistic, or claim to, than just about anyone else.
Particular sectors are already hurting. Crown Casino in Melbourne, after suffering big losses to "high rollers" in October and November, is trying to get out of its commitment to the state government to build a second hotel tower, because of a marked decline in the number of big gamblers flying in from Asia.
The National Farmers Federation is now forecasting a decline of up to 5% in 1998 agricultural income as a result of declining markets in Asia.
In the February 25 Sydney Morning Herald, Dianne Stott quotes NFF economic policy director Todd Ritchie as saying, "The agricultural sector will lose between $0.5 billion and $1 billion from the total impact, but it is more likely to be at the upper end of that range". Beef, wool and cotton were expected to be hardest hit.
The Australian Chamber of Commerce and Industry is also pessimistic, although this was in a context in which capital always cries poor. In a submission to the Australian Industrial Relations Commission, the ACCI cited the Asian crisis as a reason to reject the ACTU's claim for an increase in minimum wages.
According to the ACCI submission, "To increase award wages would be utterly inappropriate at a time when jobs are already being put into jeopardy because of the fall of export sales to Asia".
When economic prospects are declining, the employers claim that that is a reason to restrict wages. When the economy is improving, they claim wages must be restricted so that the improvement continues. Bodies like the ACCI are — of course — in favour of higher wages some day, but unfortunately conditions are never ripe.
But if the ACCI is not to be taken seriously about wages, its evaluation of the impact of the crisis looks more sober than the government's. According to data released on February 24 by the Australian Bureau of Statistics, corporate profits fell unexpectedly by 4.5% in the December quarter, after a 3.2% rise in the September quarter.
The ABS attributed the decline mainly to losses on foreign exchange and declines in the value of assets in mining, transport and services.
The Financial Review on February 20 reported the results of an IATA survey of chief executives of 46 airlines operating in the Asia-Pacific. Collectively, the CEOs had cut their profit forecasts for 1998 by US$2 billion.
Treasury, which last year was talking about the crisis reducing Australian GDP by only 0.25%, is now talking about the loss being more than 0.5% in 1998-99. Treasury forecasts GDP growth of 3.75% in the current fiscal year and 3.25% in 1998-99. In an interview with the Financial Review of February 26, industry minister John Moore said that the situation in Asia would reduce Australian 1998-99 GDP growth by at least 1%.
A far less cheerful but more disinterested forecast than Treasury's is that of the London-based Economist Intelligence Unit. It expects Australia's GDP to grow only 2.4% in the current calendar year and 2.3% in 1999.
The crisis in Asia is already restricting the government's options for stimulating the economy to counter the initial signs of downturn. Declining exports to Asia and increasing imports from the countries whose currencies have fallen are likely to worsen Australia's trade balance. This requires higher interest rates to counter a balance of payments deficit.
On February 17, the Reserve Bank surprised financial markets by signalling that it would not now cut interest rates further, despite low inflation and signs of weakness in the economy.
The immediate effects on workers will be felt most in the area of unemployment.
Economists generally consider GDP growth in excess of 3.5% as necessary to begin reducing joblessness. This means that even if Treasury's optimistic prediction proves accurate, we can expect no significant decline in unemployment over the next year and a half. If the more pessimistic forecasts are right, unemployment will increase.
In any case, there is not going to be any decline in joblessness brought about by economic growth. To create jobs for the unemployed, the labour movement will need to fight for more direct measures.