Why the weak Aussie dollar may not cushion the economic shock

Why the weak Aussie dollar may not cushion the economic shock

Dr Joiner said the benefits of tourism and education exports from a weaker Australian dollar had been dampened by the coronavirus pandemic, with the global travel lockdown weighing heavily on service exports.

“Similarly it would benefit the manufacturing sector; however, that sector has never recovered from the GFC in terms of export volumes and isn’t capable of doing so now,” he said.

“Resources are the positive especially if China looks to stimulate its economy via infrastructure and property but that demand is exogenous to the Australian dollar, but the profits that flow back to Australia will have a tailwind.”

Former ANZ chief economist Saul Eslake. Jesse Marlow

Former ANZ chief economist Saul Eslake said the Australian dollar wasn’t acting as a true shock absorber because businesses were unable to reap any of the potential benefits in the current economic environment.

“To act as a shock absorber, businesses and households have to be in a position to respond to the fall in the Aussie by switching from foreign-produced goods and services to domestically-produced ones, and to prompt foreigners to buy more Australian-produced goods and services,” he said.

“But that won’t be possible while so much of the economy is ‘shut down’, and while potential overseas markets are also ‘shut down’.”

He said the Aussie was providing a small shock absorber role in boosting the incomes of commodity exports where prices had so far remained relatively resilient.

Other economists said that while the shock absorber may take a while to kick in, it would help drive the recovery on the other side of the coronavirus.

“The sharp fall in the value of the Australian dollar since the crisis started shows that it has been doing what it normally does whenever there is a threat to global growth and our export earnings,” said AMP Capital chief economist Shane Oliver.

“This benefit may not be fully realised though, till after the virus comes under control given the slump in global demand.”

IFM’s Dr Joiner agreed.

“While the lower Australian dollar won’t help much during this crisis, it should act as a tailwind as markets, tourism and education services re-open,” he said.

“But it won’t benefit everyone as the import intensive retail sector will face a distinctly unhelpful higher cost of goods at a time when it will be trying to recover.”

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