One week into 2016 and $75 billion has been wiped off the value of the Australian stock market, plus another few billion off property values in Melbourne, Perth, and Sydney.
Not that there have been many people trading in either equities or homes, as many of those normally at their screens have been holidaying in the heaviest January rain the east coast has ever witnessed.
With little else to report on (government and many businesses are entering the second half of an 8-week furlough that ends with the Australia Day holiday on January 26) analysts and commentators have come up with all kinds of reasons for the market meltdown, most of them overseas-related. Commonly mentioned are concerns about the Chinese economy and the blundered currency devaluation, as well as a declining growth rate. Add to that apprehension about the durability of the US economic recovery, fears that the downturn in commodity and energy prices may continue, unease about the Middle East, and even more unease about Europe. North Korea’s reported testing of a hydrogen bomb has not helped.
However, apart from the Korean test, none of this is very new, and does not explain the so called Santa rally before and after Christmas when, inexplicably, resources stocks rose.
Few analysts looked at issues within Australia, and that is where many of the problems lie. It is the same problem that took the ASX down below 5000 last year, in the dying days of the Abbott government, and has now pushed it there again. But Malcolm Turnbull so far has failed to turn the economic tide.
The PM said he would be spending most of the long summer vacation working, and certainly he has been quite visible in the media. But his focus has not been on economics, or only marginally so.
He has had to ask for the resignation of his minister for cities, Jamie Briggs, after a Cabinet investigation decided that his conduct while in Hong Kong was inappropriate. It emerged that this ‘inappropriate behaviour’ amounted to little more than paying a compliment about the blue eyes of a young woman diplomat who had agreed to accompany him and his chief-of-staff to dinner; he planted a gentle farewell kiss on her cheek. After discussing the matter with colleagues the next day, the diplomat decided to file a complaint.
No sooner had Briggs, a staunch supporter of the former prime minister, departed the Cabinet than his friend and fellow Abbott supporter, Peter Dutton, the immigration minister, received a reprimand for calling a female journalist on a Murdoch tabloid a ‘f……ing witch’. Dutton swiftly apologised, and survived, the journalist taking it all in good part.
All this was a distraction of course. More serious is the decision of Murdoch’s The Australian to engage the services of Tony Abbott as a columnist. Despite promising not to ‘rock the boat’ after being ousted in favour of Turnbull, Abbott has used his column to do just that.
In its latest manifestation, Abbott’s column reminded Turnbull of the need to tackle the issue of widespread corruption within the trade union movement, in particular the need to re-establish the Australia Building and Construction Commission. A Royal Commission into trade union governance and corruption found ‘widespread and deep-seated misconduct by union officials’, and urged criminal prosecutions against a number of named individuals.
Turnbull’s response has been part-reactive, part-adroit; he was helped by the Labor opposition dismissing the Royal Commission as ‘a political witch-hunt’, and playing into the prime minister’s hands.
Turnbull swiftly flagged sweeping new laws to tackle union corruption, and gave lawmakers until the end of March to pass them, saying that the Commission’s report was a ‘watershed’ which could become an election issue if the Senate blocked them.
This has led to speculation that the prime minister will use an expected Senate vote against the legislation, to be introduced when Parliament returns next month, to call for a double-dissolution of both the House of Representatives and the Senate, resulting in an election which he would certainly win.
Meanwhile, much-needed economic, taxation and workplace reform will delayed until at least mid-year, and it is these issues that require the most attention.
But what about China? Australians have been so swept up in the stardust of China’s success that they have failed to understand that China is attempting a difficult transition from an export-led economy to one based on domestic consumption. That is precisely Australia’s problem too; except that it has a much smaller population, and needs to reduce its cost base. That can only be done through economic and fiscal reform, where Turnbull, like Abbott, Rudd and Gillard before him, has so far been found wanting.
Essentially China is not Australia’s problem. China simply no longer requires the volume of minerals, especially iron ore, that it was buying from Australia at hugely inflated prices. What it does need is food and other products that Australia is either not producing, or not producing in sufficient quantity. Witness the way Chinese traders have been sweeping supermarket shelves of Bellamy’s baby formula products, because the company and its Chinese importers cannot meet demand. Another company that could not meet Chinese demand for milk products has publicly expressed frustration because an inept local authority in Victoria will not allow it to build more milking sheds. These microeconomic issues demand the Turnbull government’s attention, and are not getting it.
Australia needs a wake up call to get more goods to market. Gordon Orr, director emeritus of the consultancy, McKinsey, urges us not to over-focus on short-term noise about China’s GDP growth, but instead to identify the medium-term direction of the parts of its economy “relevant to your business”.
In the Australian context, this is wise advice. So is his suggestion that opportunities for Australian agricultural exports to the fast expending Chinese middle-class are huge. Australia may have to keep its minerals in the ground a little longer, and become more nimble in dealing with the new opportunities. ‘Nimble’ is a favourite Turnbull word. It’s time for the Government to show it is nimbler than its predecessors.