The economic news out of Australia is getting gloomier.
As China-driven mining investment slows, auto manufacturers prepare to close up shop, domestic consumption falters and unemployment rises to levels not seen in more than a decade, Australia's long streak of good fortune appears to be nearing an end.
Property prices have been heading up again since the middle of last year, expanding at their fastest clip in three years. Chinese and other foreign buyers remain big players, turning Sydney and Melbourne into two of the world's least affordable cities. For debt-laden Australians fortunate enough to own their homes, the big threat is a steep price decline – if not an actual U.S.-style burst bubble – as the economy weakens and incomes come under pressure.
The jobless rate climbed last month to 6 per cent from 5.8 per cent in December. That would look good to Washington, Ottawa or Brussels. But it's the highest level in Australia since July, 2003. The numbers have been headed in the wrong direction since the middle of last year and employment growth has been flat over the past year.
In another ominous development, Toyota Motor Corp. announced this week that it will stop making vehicles in Australia, joining Ford Motor Co. and General Motors Co. in a rush to the exits. All three auto manufacturers say rising costs and a shrinking share of the domestic market make it uneconomic to keep producing in the country.
Auto sales in Australia hit a record 1.14 million last year, but domestically made products accounted for a fraction of the total. Observers predicted that if even one car maker left, the others would inevitably follow, because it would cause the automotive parts base to shrink, making the industry even less competitive.
That effectively means Australian federal and state governments have poured billions of dollars in subsidies down the drain. (Toyota, in fact, got a $23-million grant just last year.)
All of this serves as a cautionary tale for Canada, another country inordinately dependent on resource extraction and auto manufacturing for jobs and export growth.
But it would be wrong to make too much of the similarities.
For one thing, Canada's more diverse economy may already be past the worst of its problems, particularly if the vital U.S. market continues on its current path to recovery. If you have to tie your fortunes to a single large foreign market, I'd rather bet on the U.S. than China and its desperate efforts to engineer a soft landing while keeping its fragile banking system from imploding.
On the auto front, it's hard to see the car makers abandoning decades of production in Canada. Australia used high tariff walls to lure manufacturers to a sizable but rather isolated market. And then the tariffs began coming down. Canada's attraction was no duties for U.S. manufacturers, a lower cost base and convenient plant locations close to major markets.
Still, there are a few lessons to extract from their woes. Australia was one of the few developed countries to steer through the global financial crisis without a hiccup. But it may now be paying the price for an overreliance on the resource-gobbling Chinese juggernaut, as well as an overvalued currency that have made manufacturing uncompetitive. Something to bear in mind the next time you feel like bemoaning the weakening loonie.