BUSINESS FORECAST IS A WILD RIDE AHEAD

Written on the 14 May 2012

BUSINESS FORECAST IS A WILD RIDE AHEAD

THE next wave of prosperity may reach our golden shores as soon as 2014, but BIS Shrapnel chief economist Frank Gelber (pictured) warns tourism investment must improve.

As economic conditions improve, Gold Coast business leaders need to be more positive-minded and cast away the frugal corporate culture they acquired during the downturn and a summer of disasters.

The zero growth in employment during the past 12 months is a stark reflection of the recessionary tendency for companies to rely on existing staff to drive productivity. However, enterprises should not expect to cope with the upturn by simply working staff harder.

The Reserve Bank of Australia predicts staff capacity constraint issues will arise two years from now. Managers will have to move away from cost cutting and maximising savings to catering more for growth. They will eventually have to hire more staff to meet demand.

Property, retail and businesses employed by the mining sector, which have struggled to make ends meet, will be running ragged within a few years due to the next mining boom.

Tourism businesses should go one step further by driving a harder bargain. Many operators neither offer good value for money nor invest enough capital for moderate growth. The industry is not building enough hotels and room rates are relatively high, preventing the city that is so “famous for fun” from truly becoming a value-formoney destination.

Investment in Queensland’s property market is tipped to be a primary driver of growth and go off the scale, with Gold Coast house prices set to soar 20 per cent in the next three years. The housing market has bottomed out and already started to come out of it.

BIS Shrapnel predicts this investment will help reduce the national unemployment rate from 5.2 to 4 per cent by the year 2013, having a positive effect on Queensland’s above-average 5.7 per cent.

This is likely to lift interest rates to 8.2 per cent and boost retail turnover from 0.7 to 3.1 per cent by 2014. The State’s economy will be absolutely, bloody booming. Hang onto your hats – it will be a wild ride.

The national gross domestic product (GDP) is about 2.5 per cent, which is neither spectacular nor doom and gloom. Income growth is twice that of the GDP and this is the product of a highly valued dollar.

Never underestimate currency in terms of what it produces.

Australian industry’s decline since the 1970s due to the high dollar and overseas relocation is lamentable. Companies should try harder not to lose business to offshore competitors, otherwise we will keep losing local manufacturers.

To increase competitiveness, the United States has requested that the value of China’s currency be raised. The RMB is indeed undervalued and not only holding back China but also the US and Europe.

Australia should adopt an export-strengthening strategy previously employed by North America to counter the rise of Japanese manufacturing.

The US restored its manufacturing powerhouse status in the 1980s, because the US dollar fell and Japanese Yen rose. Countries like Greece could similarly avoid a whopping great recession by depreciating their currencies where possible. The alternative is reducing wages and asset prices by 20 per cent, but human greed has shown this is an unlikely choice.

However, the high dollar still carries some good news. It shows Australia is an attractive place for investment – this is one of the reasons why the currency is worth so much.


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