Friday, April 12, 2013

Woodside backdown caps rocky week for Australian economy

By Business editor Peter Ryan
This morning's announcement from Woodside shelving the Browse project in north-western Australia caps a rocky week for the Australian economy.

Resource projects aren't the only worry. There's a prediction that the demise of the Australian car industry is inevitable - but more on that later.

The combination of the high Australian dollar and the cost of doing business in Australia has been taking a toll for some time, especially with the dollar now back over 105 US cents.

Listen to my analysis from this morning's edition of AM.

Read Woodside's announcement to the Australian Stock Exchange

But simple economics and basic housekeeping rules are at work here for the resource giants - especially when it comes to multi-billion dollar projects like Browse.

And Woodside isn't the only company running a ruler over massive cost versus returns.

Just last year BHP Billiton shelved its much hyped Olympic Dam project in South Australia, citing the cost of doing business here in addition to the Australian dollar.

And Woodside's expected decision fits in with predictions that the investment phase of the resources boom will peak earlier than expected - that's something the Reserve Bank has been saying for the past year as it manages expectations about the long term life of the boom.

Woodside is one headline today. But other industries - such as the car manufacturing sector - are also putting the government on notice.
Jac Nasser, currently the chairman of BHP Billiton and the former boss of Ford, has ramped up the warnings.

Speaking in Melbourne yesterday, Mr Nasser said all businesses including miners are wary about the cost of doing business in Australia, industrial relations and the thorny issue of tax and how much they say they're already paying.

But on the future of the local car manufacturing industry, Mr Nasser is quite pessimistic and he believes it's inevitable because of the factors, in particular the high dollar, that the local industry currently Ford, Holden, Toyota will eventually shut down.

"As soon as you have a reduction in the scale of domestic manufacturing, let's assume one of the three decide to exit Australia in terms of manufacturing, then you end up potentially with a subscale supplier infrastructure. And once that happens, I think it's a domino effect," Mr Nasser said.

"It would be a very sad day for Australia but unfortunately it looks like it could be inevitable."

But the latest unsettling news about resources amounts to a reality check.

It comes after Australia's official jobless rate hit 5.6 per cent after more than 30,000 jobs disappeared in March after expectations had been for a steady result.

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