How a strong dollar brands the economy

Illustration: Rocco Fazzari.
Illustration: Rocco Fazzari.

Not even good old Rosella falling off its perch, challenging the national right to a decent can of tomato soup, is stopping the dollar.

Really, Darrell Lea was bad enough, then it was Allans and Billy Hyde becoming a bygone icon.

Is it the water or something?

It's as if the longer a local brand has been around, the greater the chance it'll go under.

I suspect when a great brand survives so long, the business, which is usually family-owned or a private company, becomes set in its ways. Why change what works?

But the digital age is about investing in new machinery to cut labour costs, using the internet and, maybe most of all, marketing. It's not good enough to think that everybody's heard of the brand, so why bother?

They might not have. That's the other thing. This is a different country than 50 years ago, so there's less recognition of, let alone sentimental attachment to, local brands. Mind you, the strong dollar has made it tough out there. Bankruptcies in the year to June 30 were a record and each month since then the number has been rising.

Yet, supposedly, GDP has been growing somewhere between 3 per cent and 4 per cent, which is smack on average. You know what they say about statistics, except it's true, because our growth is all about the mining boom.

For a more realistic feel for what's going on, take the least mining-influenced state (apart from Tasmania, which has shrunk 5.8 per cent in a year). Victoria is crawling along at an annual 1.6 per cent.

That the non-mining economy, which is most of it, is in or near recession was all but admitted by the RBA in cutting interest rates.

Over the past half year, per capita growth has slowed from 1.7 per cent to nothing at all. And that's at the peak of a gigantic mining-investment boom. You can see why the Reserve dropped its official rate to the GFC emergency level of 3 per cent.

Even so. A mining boom later, surely things can't be as bad as then.

The global economy is better, not that you'd notice with the naked eye.

Trouble is, there's another problem: this time the dollar is 35 per cent higher and is knocking the stuffing out of manufacturing and, by making offshore online shopping cheaper, retailing.

Worse, it may have reached its use-by date as an economic shock absorber. The dollar was after all the hero of the GFC, plunging 29 per cent in five months.

Despite last week's rate cut, which normally weakens it, the dollar hasn't budged. The RBA is counting on the housing sector, buoyed by low rates and higher exports from all that mining investment, to boost growth. But without the dollar dropping, that won't save our endangered specialities.

Follow David on Twitter: @moneypotts

This story How a strong dollar brands the economy first appeared on The Sydney Morning Herald.