Business and the dollar – September 2013

The recent depreciation of the dollar has not been all good news for Australian business. While a weaker dollar has helped raise returns in export markets and blunted some import competition it has also raised input costs for some domestic industries that are in no position to pass them on.

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The recent depreciation of the dollar has not been all good news for Australian business. While a weaker dollar has helped raise returns in export markets and blunted some import competition it has also raised input costs for some domestic industries that are in no position to pass them on. Around one-third of Australian businesses report adverse effects from the level of the Australian dollar, especially in wholesale, manufacturing, retail and mining. Businesses use a diverse range of strategies to deal with the level of the dollar, especially hedging, reducing overheads and downsizing.

  • Despite the recent depreciation, 32% of non-farm businesses reported an adverse impact from the $A. Around two-thirds of wholesale and almost half of retail responses were negative, probably because lack of pricing power is seeing the depreciation squeezing margins in these sectors. Adverse effects were also very pronounced in manufacturing (59% of businesses) and mining (30%).
  • The extent of these effects appears plausible given that that the combined value of exports and imports of goods and services represents around 40% of Australian GDP and that some businesses may have experienced positive effects.
  • Hedging is the most common strategy used by affected firms, especially in wholesale and manufacturing. Downsizing and reducing overheads have also been important responses in mining, manufacturing and wholesale.
  • These results are derived from a special question in the September quarter NAB Business Survey. The full results will be released on 17 October. The special question will be included in several future Quarterly surveys.

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