It was notable, as well as encouraging, that Prime Minister Malcolm Turnbull focused his early remarks on the need to transform into an agile and smart economy to boost Australia’s economic performance.
According to the Australian Bureau of Statistics, economic growth all but flatlined in the June quarter. Exports contracted. Mining and agricultural production fell sharply. It’s been reported that overall growth was only pushed into the black by late government spending on defense, Business Spectator reported.
One bad quarter, of course, is far from a disaster. The real problem is the current paucity of drivers of future growth. The immediate causes of our loss of economic momentum have been well rehearsed. The mining exploration boom is over. Commodity prices have slumped on declining demand from Asia.
Cyclical demand is a reality of global commodity markets and its downturn should catch no one by surprise. The problem is that the country’s economy has become unbalanced: it is over-reliant on the volatile fruit of boom times, and over-exposed to the cyclical nature of demand.
Most commentators believe things are likely to get worse for China, and with it, commodity producers, for some time before they get better. The question now is how will Australia respond.
A ‘do nothing’ response might be to try to wait it out, perhaps relying on the tourism and services sectors to carry us through until global commodity prices rebound. Or, we could spend our way through, relying on continued cheap credit to keep domestic retail and housing demand up.
Of course, those are not real options at all. These are recipes for rising unproductive debt, rising unemployment, falling incomes, and declining standards of living, with no assurance that households and businesses will regain lost ground when the markets eventually turn around.
Exploring New Sources
Long term, the only way for Australia to develop real economic resilience is by adopting a strategy that will reduce the country’s over-reliance on the commodities sectors. And that strategy can only be one founded on innovation and entrepreneurship, both to drive new value from our primary production base and to discover and invent products in exciting new fields that the world hasn’t ever seen before.
Alternative economic growth strategies, such as population growth alone, cannot solve the country’s ills. We must still explore new sources of value to give people a reason to choose to make their lives here. That value can be derived in many ways. Increased complex manufacturing, to produce higher value export goods, is one.
Other sources of value include new services, technology products, biotech, and cleantech, just to name a few. What links them all is the need for innovation to maximize their economic impact, while making sure we are meeting real needs and aspirations, solving meaningful problems and offering solutions.
