“Batten the hatches. This is not just a recession. This is the sharpest deceleration Australia’s economy has ever seen”, Australian economic forecaster Access Economics warned in its latest quarterly Business Outlook report, released on January 18. The Access report said that Australia’s economy shrank in the December quarter despite the Rudd Labor government’s $10.4 economic stimulus package and will shrink again in the current quarter. It predicted that the official number of unemployed workers would swell to 850,000 (7.5% of the workforce) by early 2010.
According to the Australian Bureau of Statistics, there were 498,000 unemployed workers in December – 4.5% of the workforce. The official unemployment rate reached a 33-year low of 4.1% in last February, when there 458,300 workers officially classified as unemployed.
Access, which is known as Australia’s “Treasury in exile” for the large number of former Treasury officials it employs, had earlier shared Treasury’s view that continued high economic growth in China and the boom in Australian coal and iron ore exports that it has generated over the last four years would continue, giving Australia “12 months of immunity from worldwide troubles”. But Access now recognises that, because China’s economy is slowing as demand for its cheap manufactured exports rapidly declines under the impact of the global economic slump, Australia’s mining boom has ended.
China’s slowdown
Exports account for about 40% of China’s GDP, with most Chinese exporters being contractors for First World corporations. If exports stagnate or decline, China’s economic growth slows significantly. In 2007, China’s GDP grew by 13% and last year by 9%, but its GDP growth fell to 6.8% in the December quarter. Access now expected China’s economy to grow by only 6.2% this year – down from the 9.75% predicted by Treasury in November. It noted that 10,000 Chinese factories have closed in recent weeks, untold numbers of employees being laid off. “China’s slowdown is Australia’s recession”, the forecaster said.
China is Australia’s second largest export market, accounting for $32.0 billion of Australia’s total exports of $263.2 billion in the 12 months to the end of October 2008. Japan, which is Australia’s largest export market (accounting for $43.5 billion in the same period), has been in recession since November 2007.
Australia is the world’s largest exporter of coking coal (used in making steel), the second largest exporter of thermal coal (used to fuel power stations) and the second largest iron ore exporter; coal and iron ore accounted for 28% of Australia’s export earnings last year. Japan and China are Australia’s biggest markets for these commodities.
The January 10 Australian reported that Goldman Sachs’ forecast for the Australia-Japan thermal coal price in 2009-10 is 44% less than the current price of $US125 a tonne. “As always, China remains a wild card in the thermal coal market. Chinese coal production is running ahead of demand and stocks are rising, raising the likelihood of higher exports and lower imports of thermal coal in 2009, it said.”
Reuters reported on January 28 that “Japanese steelmakers will press for cuts of 40 percent in iron ore prices and 60-70 percent in coal prices for the next business year due to falling costs of natural resources and weakening steel demand … Japan’s steel industry is set to slash output by at least 30 percent in January-March, and hopes to offset the impact of lower capacity utilisation by asking for sharp raw material price cuts ... the steelmakers could make their requests as early as next week to iron ore suppliers Companhia Vale do Rio Doce of Brazil, BHP Billiton and Rio Tinto and will also negotiate coal prices with the latter two companies.”
Confirming the end of Australia’s mining boom, BHP Billiton, Australia’s biggest corporation and the world’s biggest mining company, announced on January 21 that it planned to cut its 101,000-strong global workforce by about 6% in response to the global economic slump, with 3400 of the job cuts to be made in Australia. The Minerals Council of Australia, which represents the mining companies, said the BHP decision would bring to 8500 the number of mining industry jobs lost since June. Last financial year, BHP reported a record $15.4 billion profit. Business analysts expect BHP to make a profit of about $13 billion this financial year.
Unemployment set to soar
In its January Business Outlook report, Access stated: “Our boom of the last four years has been all but undone in the last four months. That may mean not merely the recession we forecast, but something bigger and badder. Unemployment could go higher than the 7.5 per cent we forecast.” Indeed, some other business analysts have already forecast that it will go higher. Last October, for example, Stephen Walters, JPMorganChase’s Sydney-based chief economist, predicted that unemployment in Australia would more than double to at least 1 million by 2010 as economic growth in China declined.
In its latest World Economic Outlook report, released on January 29, the Washington-based International Monetary Fund now forecasts global economic growth at 0.5% in 2009 – the slowest rate in 60 years, and a dramatic revision downwards from its forecast of 2.2% just two months ago. In its November report, the IMF had forecast that the developed capitalist economies would contract by 1.1% in 2009. It now expects that the US economy will contract by 2%, Japan by 2.6%, Britain by 2.8%, the rest of the EU by 1.6% and a group known as “other advanced economies”, which includes Australia, by 2.4%. All these projections took into account the hundreds of billions of dollars that have been allocated to “stimulus” packages by the capitalist governments of China and the developed capitalist countries. As such, they illustrate the inability of these governments to counteract the global capitalist economic crisis.
The IMF also reported that world trade contracted by 45% on an annualised basis in the last three months of 2008. During the Great Depression of 1929-33, world trade contracted by 65%.
Also on January 29, the International Labor Organization, the UN’s labour agency, released a global employment report predicting that the global economic slump could result in the loss of 51 million jobs this year. This would push the world unemployment rate to 7.1%, 230 million people, by the end of 2009, compared with 6% in 2008. “If the recession deepens in 2009, as many forecasters expect, the global jobs crisis will worsen sharply”, the ILO report said.
Commenting on the report, ILO director-general Juan Somavia said: “The ILO message is realistic, not alarmist. We are now facing a global jobs crisis.” The report also said that the “number of working poor people who are unable to earn enough to lift themselves and their families above the USD2 per person, per day, poverty line, may rise to 1.4 billion, or 45 per cent of all the world’s employed”.
Crisis of overproduction
In its report, the IMF attributed the collapse in global economic growth to the crisis in financial markets, caused by losses from bad mortgage loans in the US, which had now risen to US$2 trillion. “The financial crisis has weakened consumer and business confidence, raised uncertainty and destroyed wealth, leading to much lower consumption and much lower investment”, IMF chief economist Olivier Blanchard told reporters.
In reality, both the financial crisis and the global economic slump are the product of a classical capitalist crisis of overproduction, as analysed by Karl Marx 150 years ago. Too much money has been invested by capitalist corporations in the production of goods, particularly houses and plant for the production of motor vehicles, to return a profit. Thus, between 1990 and 2003, the big auto corporations invested billions to expand their capacity to produce cars and light trucks from 58 million units to 77 million. But, as an article in the March 8, 2003, Washington National Journal reported, “... consumption of new vehicles this year is expected to total only about 56 million units. As a result, overcapacity in the auto industry is now about 27 percent worldwide. ‘At some point, something has to give,’ said David Snyder, director of business development for Ford.”
Beginning in 2005, “something” did give – the profitability and potential survival of the three major US automobile makers. In 2005, General Motors, at that time the world’s biggest auto maker, recorded a loss of $10.6 billion. Ford lost $1 billion that year. In the following two years, GM lost $40.7 billion, Ford lost $15 billion and Chrysler lost $4.5 billion. All three companies continued to bleed in 2008, with Ford losing a record $14.6 billion. By the final quarter of 2008, the cumulative losses were driving all three into insolvency.
Similarly, the 2001-05 US housing boom was driven by huge investments by the big banks and other financial institutions in the construction of tens of millions of houses that were “purchased” (on easy credit) by people who had no capacity to repay their mortgages. The easy credit-fuelled housing construction boom drove up house prices, enabling the US working class, whose real wages have been stagnant since the early 1970s, to use their higher-priced homes as collateral for further borrowing for purchases of new homes or other consumer goods. This upward spiral of borrowing-building, in which an estimated 25% was purely speculative, came to an end in early 2006.
In a media statement issued in August 2006, major US home-building company Toll Brothers observed that the slowdown in house building “is the first downturn in the 40 years since we entered the business that was not precipitated by high interest rates, a weak economy, job losses or other macroeconomic factors”. Company chairperson Robert Toll added: “Instead, it seems to be the result of an oversupply of inventory … Speculative buyers who spurred demand in 2004 and 2005 are now sellers; builders that built speculative homes must now move their specs; and nervous buyers are canceling contracts for homes already under construction.”
The collapse of the credit-fuelled housing boom led, a year later, to a credit squeeze and then, in August 2008, to a banking crisis. The current global economic slump appeared first as a crisis in US capitalism’s credit system precisely because, as Marx explained in the third volume of Capital, the capitalist credit system is the main lever of “over-production and over-speculation” in commodities. “The credit system”, Marx wrote in 1867, “accelerates the material development of the productive forces and the establishment of the world-market ... At the same time credit accelerates the violent eruptions of this contradiction – crises – and thereby the elements of disintegration of the old [i.e., the capitalist] mode of production …
“The two characteristics immanent in the credit system are, on the one hand, to develop the incentive of capitalist production, enrichment through exploitation of the labour of others, to the purest and most colossal form of gambling and swindling, and to reduce more and more the number of the few who exploit the social wealth; on the other hand, to constitute the form of transition to a new mode of production” by promoting the transformation of big capitalists into a parasitic “financial aristocracy”, unconnected and unnecessary to the organisation of the production of goods and services.
However, this colossal system of “gambling and swindling” can become the starting point for a “transition to a new mode of production” (socialism) only through the organisation of working people into a mass revolutionary movement that replaces capitalist governments with governments that mobilise them to replace the capitalist economic system of profiteering and swindling with a socially owned and democratically planned economy.