As the dollar and shares continue to fall, we ask what’s happening to the Australian economy? A SmartCompany Q&A

The Australian economy is upside down.

At least, that’s what it seems like. After a few years of being told we were travelling well through the financial crisis, all hell has broken loose. First, a deficit in the federal budget, then a falling Australian dollar and now a sharemarket that doesn’t seem to know which way is up.

Businesses are spooked, that much is certain. The situation isn’t helped by the fact we’ve got a federal election coming up in September, which means businesses across the country are wary about spending money on anything.

But the problem isn’t limited to Australia. The fact is, this is a global problem and Australia’s economic performance has a global explanation.

With that in mind, it’s time for another SmartCompany Q&A.

Everyone’s talking like the sky is falling in! What’s going on?

Quite a lot, actually. This week, and really, the past two or three, haven’t been kind to the Australian economy. Let’s take a look:

  • A federal budget which announced a deficit for the 2013-14 year, on the back of falling revenue from mining endeavours. As economists have pointed out, the two-speed economy is merging back into a one-speed economy, and other industries aren’t picking up the gap.
  • Poor consumer confidence numbers which Westpac itself said were odd, given the RBA’s interest rate cut. Taxpayers view rate cuts as a sign the economy isn’t improving. (They’re partly right.)
  • A falling Australian dollar, which means less spending money for overseas trips. Consumer confidence goes down again. As of this morning, the dollar sits at 95 cents – but it slipped to 94.35 yesterday. A 20-month low.
  • In the past month, the ASX200 has lost 7.52% of its value. In the past five days, it’s fallen 3.45%. Not a drastic amount by any means, but certainly not a great one.
  • GDP figures released this week weren’t great at all. We have two states in a technical recession.

But I thought our economy was doing well. What’s the deal?

Our economy is doing well. Sort of.

Unemployment is low, wages are high. We have more money than we’ve ever had in history. The ‘fundamentals’ of our economy are still strong, but that doesn’t mean we’re undergoing a huge shift in a variety of ways.

For one thing, as the government is keen to point out, the mining boom is ending. Investment is set to drop to just a few tens of billions of dollars by 2018 – it’s currently in the hundreds. Right now, the services industries we base our economy on aren’t advanced enough to bridge that gap.

Not to mention we’ve just seen the manufacturing industry prove it hasn’t been able to keep up with the times. Ford isn’t the only victim – yesterday food manufacturer Simplot said it may close two Australian plants and consider imports.

This is thousands of jobs we’re talking about. Not to mention all those retail businesses which aren’t doing too well either. Several say these are the hardest conditions they’ve ever seen.

Sounds terrible!

It is, but hold on. Not all of this is Australia’s fault. The entire global financial framework is undergoing a big shift, and thankfully, there’s some good news.

Story continues on page 2. Please click below.

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