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Bamboo shoots: have exports saved us from recession?

11 June, 2009

We’ve all heard the news. According to the latest national accounts, Australia has skipped a technical recession for now. This is quite an extraordinary achievement given that 75 per cent of the world’s economies are expected to contract in 2009 due to the high level of synchronisation of the global financial crisis (GFC). Source: Tim Harcourt.

We learnt about one reason, when the better than expected trade numbers came in. Net exports (exports minus imports) contributed 2.2 per cent to first quarter GDP, which was their largest contribution since 1961. As import volumes fell too, we saw an improvement in the current account deficit (CAD) which narrowed to $4.5 billion or 1.5 per cent of GDP –which was its lowest share of GDP since 1980.

Of course, the remarkable story was on the export side of the ledger. Australia is the one if not the only country in the world that has not seen export volumes collapse during the GFC. This again is remarkable given that global trade is meant to shrink by 11 per cent this year, which according to Treasury Secretary, Ken Henry is “a contraction without precedent in the post-war period.”

What’s driving our remarkable export story? There are three observations that come to mind.

Firstly, taking a walk on the supply side, in the North West Shelf, the next LNG train is now on line and that had had a major impact on resource exports. These ‘capacity constraints’ or ‘bottlenecks’ that we worried about during the global commodity boom, are being fixed in places, right when we need it.

Secondly, again on the supply side, rural exports are improving thanks to climatic factors (with heavy rain in some parts) and the overall strong competitiveness of Australia’s agribusiness sector. Productivity gains really bare fruit when global competition stiffens during a crisis.

Thirdly, it’s those ‘bamboo shoots’ coming from China (rather than just the ‘green shoots’ ‘of recovery from only the USA). China’s stimulus packages are taking hold, particularly in the second and third tier cities of inner China, and the move from export-led development to domestic consumption and investment is starting to have an impact on domestic activity.

Also China is substituting some local production in the energy sector, with countries like Australia and Brazil filling the void. There’s almost been a repeat of the Asian Financial Crisis of 1997-99, when trade was diverted from South East Asia to the Middle East and elsewhere, but this time China is picking up a lot of the slack.

Of course, whilst there are debates about the technicality of recession, the important thing is the labour market. We need to keep a watchful eye on unemployment. And this is where exporters really make a difference. According to Austrade research, exporters, on average, are not only better employers than non-exporters, in terms of wages, conditions and occupational health and safety but they also make an important contribution in terms of job security.

As exporters invest more in their workers through and education and training, they are more likely to hang onto them during a downturn (economists call this ‘labour hoarding’) so as to not lose their investment. Employers, who lay off quickly, tend to struggle when the ‘war for talent’ heats up in recovery. This behaviour, which is typical of exporters, will help cushion the impact on the labour market which is important given the dependence of Australian workers on engagement in trade.

So, with the good news for today, it’s a matter of so far so good, but with caution ahead given the risks of another factor X (like a Lehman Brothers) looming on the horizon. But because of our exporters, Australians can thankful that we are faring better than most of our counterparts in the GFC.

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