Jobs lost as economic reality hits

By Sid Maher, David Uren, Matt Chambers

The high Australian dollar and a slowdown in the non-mining sectors of the economy have claimed their first mass casualties, with Qantas and steelmaker OneSteel announcing job cuts and banking giant Westpac eyeing cutbacks.

The job shedding came as the Reserve Bank warned that the nation needed to lift its productivity if real incomes were to keep growing as prices for commodity exports declined in the future. As economists warned that there could be a large increase in the number of jobless before the end of the year, Julia Gillard and Wayne Swan moved to reassure the nation that the economy was sound, despite the turmoil on global financial markets.

In a statement to parliament, the Treasurer said Australia was better placed to ride out the economic turbulence than it was before the global financial crisis in 2008.

“I don’t want to sugarcoat the current situation — if the global economy were to weaken materially, that would obviously have an impact here. But our fundamentals are strong, and we have a government with a proven track record of dealing with global instability and that is getting on with the job of rolling out a reform agenda to further strengthen our economy,” Mr Swan said.

But opposition Treasury spokesman Joe Hockey said Mr Swan was clearly preparing the ground “to break his promise to deliver a budget surplus in 2012-13”.

The jobless rate rose to 5.1 per cent last month — its highest level since November — as the number out of work climbed 18,000 to 611,600.

Until now, new job creation by industries such as business services, hospitality, recreation and mining have been sufficient to offset losses in manufacturing and wholesale trade. Although under pressure, retail has so far held employment steady, with stores hoping for a good run up to Christmas.

If, as several market economists think likely, the jobless rate were to rise to about 5.5 per cent by the end of the year, it would mean a further 60,000 people on unemployment benefits. During the GFC, the unemployment rate rose from 4 per cent to a peak of 5.8 per cent with the addition of 230,000 people to the dole queues.

Mr Swan said the job cuts at Qantas and OneSteel showed the challenges that came from a patchwork economy. “Our fundamentals are strong, but not everybody is doing well, and there are soft spots in the economy, particularly those impacted by a higher dollar.”

The RBA board, in minutes of its August meeting released yesterday, warned that continued poor productivity growth would mean the wage and profit rises of recent years would only be obtained by an increase in inflation.

Australia’s productivity growth had been weak over the past five to 10 years and growth in incomes had been held up by higher commodity export prices, the bank said.

“However, with the forecasts suggesting that the terms of trade were likely to be subtracting from income growth over coming years, a significant pick up in productivity growth would be required to sustain real income growth around the rates seen in recent decades,” the RBA board minutes warned.

Qantas yesterday incensed unions and sparked a political row in Canberra by announcing it would cut 1000 jobs, while OneSteel said it would proceed with 400 job cuts and Westpac chief executive Gail Kelly flagged cuts as the bank combated a slow economy and lower credit growth.

Qantas pilots have already voted on a raft of industrial action that allows work stoppages of up to two days; ground staff will vote on potential industrial action on Friday and caterers are due for a similar vote in two weeks.

Independent senator Nick Xenophon has called for a Senate inquiry into whether Qantas has breached terms of the 1992 Sale Act, when it was privatised and floated on the stockmarket. The act requires that Qantas maintain its headquarters and main operational base in Australia.

Qantas said it would cut international routes, retire four Boeing 747s and delay the delivery of six Airbus A380 superjumbos by up to six years. Qantas chief executive Alan Joyce also announced plans to set up a new premium airline based in Asia and a cut-price one in Japan.

Mrs Kelly said Westpac recognised the “new reality of banking”.

“We’re into a slow growth period and we expect that’s going to be continued in the period to come,” she said. “We’re not going to go back to the environment of pre-global financial crisis . . . and so we need more productivity to actually drive appropriate returns and sustainable returns to shareholders.”

The cuts at OneSteel, many already made, come as the Sydney-based steelmaker warns it may have to consider closing its Whyalla blast furnace in South Australia, one of only three in the nation, if the Australian dollar pushes through $US1.10.

Last week, the only other Australian listed steelmaker, BlueScope Steel, put its blast furnaces on review because of pressure from a rising dollar, rising iron ore and coking coal prices, lower domestic demand and low steel prices.

Both BlueScope and OneSteel say the Gillard government’s carbon tax had nothing to do with their review

or cutbacks.

In parliament, the Prime Minister repudiated Tony Abbott after he linked the job losses at Qantas and OneSteel to the carbon tax.

“Why is she making competitive pressures worse with a carbon tax that applies to Australian companies but not to our competitors,” the Opposition Leader asked.

Ms Gillard accused Mr Abbott of trying to “spin” the job losses to suit his own political purposes: “To do so is completely disrespectful, both to those companies but more importantly to the workers in those companies, many of whom have got bad news today.”

Australian Chamber of Commerce & Industry economics director Greg Evans said employment growth was slowing and the trade-exposed part of the economy was reeling from the impact of the higher dollar while in other parts of the non-mining economy, trading conditions were subdued because of a softening in overall demand.

Deutsche Bank chief economist Adam Boyton said all the indicators, such as internet job advertising and business surveys, were pointing to weaker jobs growth:

“By the end of the year, the US economy could be in recession and unemployment here could easily reach 5.5 per cent. This would be a very different dynamic before the Reserve Bank, with its next move likely to be a cut, to take insurance.”

Article from The Australian, August 17, 2011.