OPINION: Global tumult appears set to deliver challenges for businesses in WA.
Australia is likely to face increasingly hostile business conditions from the start of the new financial year.
Top of the worry list for Australia is the battle of the giants – the US and China – a clash that has been a long time coming and could require smaller countries to take sides.
Ready or not, Western Australia is the state most exposed to a worsening trade war that threatens to hit demand for mineral exports.
That’s especially the case for iron ore, which is already showing signs of falling below $US90 a tonne, before perhaps going a lot lower.
Mine closures are unlikely, but expansion projects will be curtailed and cost cutting strictly enforced as a precaution against the price dropping to the crisis level of less than $US50/t, seen as recently as 10 years ago when a low of US$38/t was reached.
State and federal governments will feel the squeeze as much as the mining companies and their workers, with wages, taxes and royalties all shrinking.
A squeeze on iron ore is developing, with one arm of the pincer being the US ban on Chinese steel products, which is being extended to household goods such as washing machines and refrigerators.
The second arm of the pincer will come when the high-grade and low-cost Simandou mine starts delivering African ore into China.
Belt tightening is already evident in the WA iron ore industry, with a recent decision by Gina Rinehart to put her different interests under a single roof both a sensible efficiency move and a cost saver.
Artificial intelligence, which is also seen as an efficiency and cost-cutting tool, will affect some industries where repetitive actions can be machine learned.
But the hype associated with AI is showing signs of fading as it starts to resemble the same sort of bubble seen in the dot.com boom of the late 1990s, or the green hydrogen boom of two years ago.
Problems with AI include its penchant of telling people what they want to hear and a failure to (yet) demonstrate when (or how) the billions of dollars being invested in it will generate a return on investment.
AI critics are also pointing to the failure, so far, of automated customer service chatbots to match the standards offered by a human, and failure of AI to predict stock market trends any better than a human analyst with a few years of experience and good intuition.
There’s no doubt AI will blossom, and everyone will be forced to participate in what is the next technology wave, but when the bulldust settles it will be seen as just another business tool.
Other changes FY25-26
• Goldmining, which has saved the WA economy several times in the past, will do it again as the global gold rush gathers pace, largely because the world is losing faith in the US dollar.
• Sales in WA of fully electric vehicles (EVs) will stall as buyers recognise the wisdom of taking small steps with technology, which means the EV of choice in future will be a hybrid.
• Government handouts to help people pay their electricity bills will disappear as a debt crisis grips Australia, which has been living beyond its means for a decade.
• A rescue mission will be mounted to save the ASX from shrinking to irrelevancy as investors embrace private markets; an event being played out in Britain where there is also a drought of initial public offerings.
• Australia’s appeal as an investment destination for international capital will continue falling as the high cost of doing business is magnified by the re-unionisation of the workforce, which is being encouraged at state and federal levels.
• Big companies such as BHP and Rio Tinto will direct their capital to non-Australian projects, such as copper in South America.
• Industrial unrest will grow as the competition between labour and capital intensifies.
• Property prices will continue to rise as families and investors recognise that homes, especially the principal place of residence, has become the only tax-free investment (a situation that could change as governments hunt for new sources of revenue).
For anyone old enough to remember the 1970s, it will seem like a rerun of what was a bad movie, complete with low growth and high inflation, a dreadful combination dubbed ‘stagflation’.
