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Don’t blame high dollar for manufacturing slump

31-08-2010
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in 
Don’t blame high dollar for manufacturing slump

 

The high exchange rate, mining boom and global financial crisis are not to blame for the decline of manufacturing, says Gary Banks, head of the Productivity Commission.

According to a report in the Brisbane Times, Mr Banks believes that manufacturing was “suffering anyway.”

Addressing a Deakin University seminar at Parliament House in Canberra, Mr Banks said the mining boom has just compounded longer-term trends that every OECD country is now experiencing.

"Manufacturing has been shrinking relative to the rest of the economy for decades, he said. “In absolute terms it hasn't shrunk much, but as other parts of the economy grow it has to shrink as a proportion. We can't add up everything to more than 100 per cent I am afraid – that’s just the way the arithmetic pans out."

Mr Banks said the main way the mining boom has hurt manufacturing has been by making Australians more wealthy. With more to spend, especially on services, this means other goods have to "make way".

"The rising exchange rate has simply been a facilitator of that," he said.

"It has made Australia's traded goods relatively more expensive. In the old days that would have happened through inflation, which would have led to greater unemployment and it would have been very disruptive.

"So the exchange rate - which is getting a bad name for appreciating – is actually delivering adjustment more painlessly than was ever the case in Australia in the past in response to the kind of structural pressures that we are seeing.

"In relation to manufacturing the boom and the GFC have merely accelerated the longer-term trend decline in the share of manufacturing by 1½ to two years.

"That impact has not been uniform. The biggest job losses have been where the activities have been the least competitive. These also happen to be the most highly assisted parts of manufacturing."

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