The high Australian dollar is having a detrimental impact on export sectors in Western Australia, even though export earnings are expected to keep the state’s economy’s growing in 2007.
The high Australian dollar is having a detrimental impact on export sectors in Western Australia, even though export earnings are expected to keep the state’s economy’s growing in 2007.
Chamber of Commerce and Industry WA chief economist John Nicolaou told WA Business News the Australian dollar, which recently reached a 20-month high, had affected exporters in WA – including manufacturers, fisheries and farmers – that competed on price terms with overseas exporters.
“It does have an effect in those areas where we don’t have a natural competitive advantage, where we are competing with overseas countries on price,” Mr Nicolaou said.
Foreign exchange risk has a detrimental effect on the export earnings of WA companies with their goods priced more highly than overseas competitors.
Industries including drought-hit farmers and rock lobster fisheries, which primarily export overseas, have been hit by the high exchange rate with fuel prices, wage increases and interest rate rises also having a detrimental effect on the fishery industry.
Mr Nicolaou said another threat from the high exchange rate was that it could undermine key investment projects in WA, a situation that occurred in 2004.
“The strong Australian dollar experienced in 2004 [when it pushed passed the US80 cent barrier for a few weeks] has impacted on the cost of production and returns for proposed Burrup fertiliser plants including the scrapped Methanex methanol plant,” he said.
However, Mr Nicolaou said a positive aspect was that a higher exchange rate made imports cheaper.
“Companies can import cheaper capital equipment because the Australian dollar is stronger to other currencies,” he said.
The Australian dollar has risen by five US cents over the past three months, and has been around the US80 cent mark for some time.
However, analysts have suggested the dollar would hover around the US79 cents to US80 cents range for at least the next few months.
Meanwhile, the CCI has forecast WA’s economy will grow by 6.5 per cent in the current financial year, and a further 5.25 per cent in 2007-08.
Mr Nicolaou said the positive outlook was underpinned by higher exports, based on record amounts invested in building capacity in the resources sector in recent years.
Export earnings in WA are forecast to rise by 14 per cent in 2006-07, and a further 9.5 per cent in 2007-08, however activity in the domestic economy was expected to ease this year and in 2007-08 as a result of a moderation in business investment growth after several years of large scale capital expansion.
