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Why 2013 will be toughest year since GFC

Why 2013 will be toughest year since GFC

CHINA’s economy is slowing quickly, and even a 2% dip in growth from 8% to 6% will have a massive impact on Australia’s mining industry which will reverberate around the country, according to Vantage Performance’s CEO, and Australia’s Turnaround Professional of the Year, Michael Fingland.

Mr Fingland said 2013 will be the toughest year since the GFC, with the potential for massive business dislocation beyond the mining industry if China comes off the boil.

While six months ago most economists and financial analysts were predicting at worst a soft landing for China, there is now more and more realisation that China could be in for a hard landing.

Mr Fingland said Australian businesses have not factored in this hard landing, and if it eventuates “all bets are off – businesses need to be preparing now”.

“Already, with commodity prices (for iron ore and coal in particular) declining considerably, we are seeing mining projects in WA, SA and Queensland being delayed or cancelled – and we expect the ripple effect to travel well beyond the mining and resources sector.

The following factors are weighing against Australian businesses:

1. China’s purchasing managers index has been in contraction mode for 7 months in a row which is continued evidence of the China slowdown.

2. Europe is China’s biggest trading partner and is forecast to go deeper into recession over the next 2 quarters. This will further impact China and force up borrowing costs for Australian banks which will be passed on.

3. US recovery appears to be stalling which will impact on China and Australia.

4. The high Aussie dollar.

5. Growing evidence that large national and international businesses are slowing or avoiding investment in Australia due to government policy uncertainty.

6. The carbon tax hasn’t started impacting the economy yet.

7. Australian households are still carrying record debt levels and the household savings rate is still rising which is significantly impacting the retail sector.

8. Corporate insolvencies are still at record highs.

Why China slowdown will impact beyond mining

“On the back of the resources boom, Federal and State governments have been able to increase spending on infrastructure and grants to ailing industries. With a drop in mining taxes/royalties, this falters and all industries will bear the brunt of cost-cutting,” Mr Fingland said.

“Looking at businesses around Australia, I see a lot of unprepared people in denial.

“Most business owners under 40 have not experienced a recession. The only thing that has saved us from a recession since the Global Financial Crisis is the mining boom.”

He said the next downturn would be a lot uglier because of the weakened state of so many Australian households and industries (i.e. tourism, housing, retail, manufacturing).

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