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Wednesday, January 1, 2014

The importance of the manufacturing industry on the Australian economy

Australian employment is supported by the manufacturing industry
Australian manufacturing employment: 2011 Census
In the Internet age, the creation, sale and export of digital content has become the biggest driver of many countries' economies. Though the world is slowly transitioning away from the manufacturing of goods, they are still needed.

Manufacturing is a significant percentage of Australia's gross domestic product. Changes to economic and political conditions that affect Australia's manufacturing output affect Australia's economy and its people in many ways.

Numbers

Australia employs almost 1 million workers in the manufacturing sector. Those workers produce about 8 percent of Australia's gross domestic product. A disproportionately large percentage of Australian manufacturing goes to exports, to the United States in particular. In the global financial crisis, over 100,000 manufacturing jobs were lost. Government experts estimate that a further 85,000 jobs may be lost over the next five years as the economy recovers.

This loss of employment leads many manufacturers to argue that the government should intervene. For example, Australia's car manufacturing industry aces a potential crisis similar to the circumstances requiring the 2009 U.S. bailout of American corporation General Motors. Without incentives to produce, and facing many barriers on export, Australia's automakers are decreasing production. This industry receives only $500 million per year in government incentives, yet produces $21.5 billion in revenue. With a trade deficit and difficulties competing with other manufacturing nations, these corporations believe that stimulating auto production will lead to an even greater return on investment.

Exchange rates

Exports are a particular concern for the Australian manufacturing industry. In recent years, the Australian currency exchange rate has been comparatively high. This has posed a number of problems in manufacturing, especially when it comes to competition for export markets. Being considered a "high-cost" country has made it difficult for Australia to compete with China for market share of countries like the U.S. However, in the past year, the exchange rate has dropped. In 2012, the Australian dollar (AUD) was worth about $.91 to the U.S. dollar.

At the end of 2013, that exchange rate dropped below $.90, and fell to 55.22 pence to the British pound sterling and 66.58 Euro cents on the Euro dollar. Financial experts claim that the drop occurred as a result of the doubling of Australia's trade deficit. This is despite the increase in commodity prices for precious metals such as gold, iron ore and copper, which are significant to Australia's export economy.

The difference in the exchange rate has a number of potential economic implications. As the dollar drops, Australia may be better able to compete with foreign interests with lower-rated currencies, such as China and New Zealand. While few Australian businesses or investors want to return to the days when the AUD was only about half of the U.S. dollar, many feel that the current exchange rate is far too high. Some have suggested ending the float of the AUD, which has been the case since 1983. They recommend fixing the AUD at 75 cents on the U.S. dollar. Dropping the AUD faces competition from other economic sectors, particularly imports. If the AUD drops significantly, the cost of imports will dramatically rise. While currency devaluation stands to overall benefit the manufacturing and export industries, it faces natural resistance from Australian consumers.

The global financial crisis has caused a great deal of economic trouble for nearly all nations. Australia is no exception to this. And yet, if Australia can improve its export relationships and make it easier for manufacturers to thrive, its economy will continue to benefit from this industry.


About the author: Nicole is a blogger for the manufacturing industry. She loves writing about anything to do with the manufacturing process, including everything from manufacturing news to the best bearings on the market. In her opinion, Statewide Bearing Services offer the best bearings she could find.

Image license: Toby Hudson, Australian Bureau of Statistics, CC BY-SA 3.0 AU