For years we heard that a lower dollar was needed to help with Australia’s economic rebalancing. Export-orientated sectors, having been squeezed when the dollar was above parity with its US counterpart, are now required to take up the economic slack left in the wake of the mining capital expenditure boom.
However, while many, including the RBA, believe a lower dollar is required to help with Australia’s economic transition, according to a recent NAB survey, the number of local firms hurting because of the lower currency is increasing.
As part of its quarterly business survey, the NAB asked firms whether or not they were being negatively impacted by the dollar’s current level. As the chart below reveals, aside from Victoria and Tasmania, the number of firms reporting that the lower Australian dollar is having a negative impact grew in the September quarter compared to three months earlier.
“Around a third of non-farm businesses reported an adverse impact from the AUD,” noted the bank’s economic team.
“This is up from Q2 2015, which is somewhat surprising given the lower level of the AUD since the last survey. The share of firms reporting an adverse impact is also higher than in the June quarter 2014 when the AUD was valued much higher.”
The NAB noted that much of the deterioration seems to stem from industries including wholesale, retail and transport, which have a high degree of import reliance – or have become more reliant on imports as a result of the elevated AUD in recent years.
While those sectors, on balance, were negatively impacted, there were plenty who benefited from the recent depreciation, which briefly took the currency down to levels last seen in mid-2009.
“Manufacturing has improved, while service sectors appear to be most insulated, which could reflect less import competition and few foreign input costs,” said the NAB
“Mining and personal services appear to have experienced the greatest benefit from AUD depreciation since mid-2014.”
Despite the divergent performance, given Australia’s massive services sector is required to help the economy transition in the years ahead, the lower currency remains a key piece of the jigsaw puzzle in helping to make Australia’s services exports such as tourism, education and finance more competitive in the global marketplace.