Domestic and international events are on a collision course, with 2019 to pose a plethora of challenges for business leaders.
Domestic and international events are on a collision course, with 2019 to pose a plethora of challenges for business leaders.
At risk of sounding like a parrot repeating the few words it has remembered, it is getting harder by the day for me to ignore the damage being done to the Australian economy by the politically popular game of bank bashing.
The Bystander column in the December 3 edition of Business News dealt with the understandable (but unwise) attack on the banks for their mistreatment of some customers, and the fact that a form of credit squeeze had started and was being reflected in falling property prices.
That a house price correction in Sydney and Melbourne was overdue is beyond question, but the added layer of tougher lending rules has accelerated the decline into something resembling a crash.
Despite having endured its own slide in property prices during the past five years, Western Australia has been sucked into a national event, snuffing out an embryonic recovery and prompting the state’s treasurer, Ben Wyatt, to plead for special treatment with a claim that ‘one size doesn’t fit all’ – the same argument used when fighting unfair GST treatment.
Mr Wyatt is correct about bank lending, but that’s not the way the banks see it. Instead, they are retreating into a defensive position because of the potential for a significant tightening next year of the laws governing the way they operate, after the government reacts to the final report of the Hayne Royal Commission into their behaviour.
Reports are already starting to surface about people who would normally be regarded as good credit risks being refused home loans because they spend too much on dining out or taxis, with the banks microscopically examining all domestic costs – aided by their access to credit card data.
Falling property prices have the effect of making people feel poorer, which they actually are because so much of the average Australian’s savings is tied up in property.
Meanwhile, sales of another high-cost household item – a new car – are also being driven down.
A collapse in new vehicle sales over the past six months has matched the property correction, with overall car sales in the three months to the end of November at the slowest pace in seven years.
In NSW, centre of the property fall, new car sales declined by 11.6 per cent, the worst result of the states, though WA wasn’t far behind with sales down 9 per cent.
Next cab off the economic statistics rank will be retail sales for the Christmas period, a key measure of consumer behaviour.
Unpopular as it might be to write about the worrying outlook for 2019, it would be irresponsible to not warn readers that Australia’s domestic economy, after almost three decades without a recession, is teetering towards a significant slowdown.
Waving a warning flag is also a dreadful way to end 2018, but the problems being caused by the credit squeeze could not have come at a worse time. International interest rates are rising, the China versus US trade war is worsening, Europe is sliding into a crisis as Paris burns, and Britain is edging towards its withdrawal from the European Union, perhaps without an exit deal.
International events are compounding the problems faced by Australia, with the most pressing being the need to decide which of the superpowers is more important – the US for its military protection (looking less certain by the day) or China as our biggest customer.
But before a decision is made between China and the US, there is the near certainty of a change of government in Canberra and the upheaval that always follows a shift of government spending priorities and changes to the tax regime.
Sobering as the outlook might be, WA has its fallback strengths, which means it should outperform other states over the next few years – not that this will be much of a challenge.
Fresh investment in iron ore and LNG will sustain resources sector contractors, while lithium demand accelerates as the world turns increasingly to electric cars.
With a bit of luck, however, gold mining is another part of the WA mining industry that could be on the verge of a boom.
Already travelling well with the local gold price sitting around $A1,733 an ounce, the next few years could mark a record price of more than $A2,000/oz, a combination of the international price rising to around $US1,510/oz (according to the investment bank, Goldman Sachs) and the Australian exchange rate stuck at US74 cents.
But WA’s golden lining will not offset the troubling outlook for 2019, a year when negative domestic and international forces look like they’re on a collision course.
No time to waste
Uranium mining has always been a contentious issue in WA, but a new challenge could soon arise not over exports, but rather imports.
Lynas Corporation, which mines rare earths in WA and processes the raw material into finished products in Malaysia, has been told that the existing arrangement, under which mildly radioactive waste is stockpiled in Malaysia, cannot continue.
Malaysian authorities have told Lynas it must either build a safe, permanent storage facility near the process plant, and if that can’t be achieved all waste must be exported.
The easiest solution for Lynas is to build a waste containment system in Malaysia, though the catch with that move would be in satisfying government authorities that any storage proposal is permanent.
A more difficult option involves moving all or part of the Malaysian plant to Australia, with some of the costs covered by exporting concentrated ore to China while the process plant is relocated.
A third option is to simply ship the residual material from ore mined here, but processed in Malaysia, back to WA.
Whatever Lynas decides, the clock is ticking. It has a nine-month window to resolve an issue that has been years in the making.
It’s because of the costs involved and the short time available that makes re-exporting waste back to where it came from the most attractive commercial solution.
But that’s before getting to the political acceptability of radioactive waste material not wanted in Malaysia being imported into WA, where the issue of uranium exports remains contentious.
It is possible that another country might take the Lynas waste, but that also runs into political problems.
Malaysia’s new waste handling demands of Lynas are not seen as a show-stopper for the company, with investment banks seeing it as just another cost that can be managed.
But if the proposed solution is for WA to import what it has exported, then a variation of the uranium debate could be brewing.
