Services are killing manufacturing: RBA chief

The head of the Reserve Bank of Australia (RBA)’s economics group, Philip Lowe, has painted a bleak picture for Australian manufacturing, claiming the strong Aussie dollar and the growing services sector will crush local companies.

Lowe was speaking in Sydney during an address for an Australian Industry forum called "Changing relative prices and the structure of the Australian economy."

According to a report from the Herald Sun, Lowe’s speech may as well have been called "Australian manufacturing moves to death row…"

During his speech, Lowe claimed local manufacturing is between a rock and a hard place. 

Firstly, manufacturers are being hit by falling prices for what they produce, with overseas competitors being able to produce the same goods at cheaper prices, and therefore selling them cheaper to consumers.

Gillard’s proposed reinstatement of a carbon tax will only intensify this.

Secondly, the rising wages companies have to pay their workers are hurting manufacturers bottom-lines more-so since they are not getting as much for their goods.

On top of all this, the high Australian dollar hasn’t shown any signs of falling.

RBA chief Lowe compared this bleak picture to the mining sector’s positive outlook, saying mining companies get high prices for their products, and these prices are rising much faster than their wages or their bills – even though mining wages are rising faster than those in other sectors. 

According to Lowe, many Australian manufacturers are likely to go out of business as Australia’s economy moves to support a growing services sector.

However, Lowe says the local economy can recover from the loss of manufacturing, if it ‘siezes opportunities’ provided by the services industry.

"It’s very difficult for firms involved in that [manufacturing]," Lowe was quoted as saying by Ninemsn.com.au

"To seize these opportunities we need to have these evolving changes in the structure of our country.

"If we allow that, it’s likely we will do very, very well, even though on the individual (manufacturing) firm level, some firms won’t do that well."

Image courtesy of Dailytelegraph.com.au

Is the services sector killing manufacturing? Comment below or on Twitter @manmonthly.