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rfmcdonaldReading the National Post on the subway home last month, I found Jason Smith's Bloomberg article "Mining Boom Turns Bust in Australia, Raising Risk of Recession".
Canadians who read this article might be reminded of Alberta, another resource-rich top-level federal subdivision that attracted migrants from across the country to work in resource extraction-related jobs until the recent collapse in oil prices. Can Australians tell us if Western Australia's growth came at the expense of the traditionally dominant state economies, in particular their industrial sectors?
Michael Smith moved 2,500 miles across Australia in July to earn A$120,000 ($80,000) as a blaster. Now the 30-year-old explosives expert is a motorcycle courier making half his former wage.
Smith’s woes mirror those of Western Australia, his new home, where a mining boom that drove 17 years of economic growth in the southern continent has collapsed. Commodity prices have slumped in the global credit crisis, forcing companies such as Rio Tinto Group to cut production and jobs.
For the past three years, Western Australia’s expansion rivaled China’s, its biggest export market, peaking at 14 percent in the second quarter of 2006. With growth forecast to drop to 1.5 percent by 2010, the state may not be able to prevent Australia’s first downturn since 1991.
“I’ve never seen anything like this,” said Mike Young, 48, managing director of Western Australian iron-ore explorer BC Iron Ltd. “The severity and speed of the crash was incredible.” The market value of BC Iron, which is due to begin production next year, fell 88 percent in 2008.
Australia skirted the Asian financial crisis in 1997 and the dot-com bust in 2000. It may not be so lucky this time. The economy grew 1.9 percent in the third quarter of 2008, the weakest annual pace in more than five years. Western Australia contributed to half of that expansion.
The state “was a driver of the strong growth we were having until recently,” said Shane Oliver, senior economist at AMP Capital Investors in Sydney. He predicts Australia will follow the U.S., Japan and Europe into recession this year.
“The boost to national income from commodity prices flowing through Western Australia is going from a boom to a bust,” he said.
Covering an area bigger than Alaska and Texas combined, Australia’s western-most state is rich in gold, iron ore, gas, diamonds and bauxite. A year ago, companies in Perth -- a city perched on the Indian Ocean with 1 million square miles of mineral-rich outback -- were struggling to find workers in a state with just 2.1 million people, one-tenth of the national population.
Canadians who read this article might be reminded of Alberta, another resource-rich top-level federal subdivision that attracted migrants from across the country to work in resource extraction-related jobs until the recent collapse in oil prices. Can Australians tell us if Western Australia's growth came at the expense of the traditionally dominant state economies, in particular their industrial sectors?
