Dutch Disease will hit us hard, says report

A report from research firm Variant Perception suggests the currency will head south quickly after the mining boom is over.

Variant’s report, “Australia: The Unlucky Country” suggests the country will suffer a pronounced case of Dutch Disease in the future.

Dutch Disease involves a boom in natural resources, a high dollar and a dip in manufacturing; all are currently features of the Australian economy.

The report, summarised in today’s Sydney Morning Herald, suggests that housing prices and the Australian dollar, which is estimated to be overvalued by 15-20% according to some metrics, will both decline sharply after the boom. Manufacturing – hit hard by the persistently high dollar – will not be able to make up the losses in mining capacity.

“It will be almost impossible to move mining capacity to other sectors in Australia,” says Variant.

“When the hangover arrives, writing off production capacity is often done at a considerable discount to cost. In addition, the manufacturing sector is under-developed and will not be able to take up the slack for the loss of momentum in construction and mining.”

To read Variant’s report, click here.