Australia's Two-Speed Economy Tests Gillard's Reelection Bid
from Bloomberg BusinessWeek,

On April 8, General Motors (GM) announced it was cutting about 500 jobs from its Holden subsidiary in Australia. The reason, according to Managing Director Mike Devereux, was that the Australian dollar was too strong and the devalued yen and other currencies too weak. Australia’s muscular currency makes Holden’s GM-designed autos too pricey to compete against increasingly cheap imports.

The story of Holden is being played out across Australia’s industrial regions. That means rising unemployment for factory workers, an even greater reliance on mining ore and coal for export to China, and a heap of trouble for Labor Prime Minister Julia Gillard as she campaigns for reelection.

Her party’s strongholds are in play because union members who are losing their jobs are not showing their usual enthusiasm for the Labor incumbent. Gillard is 10 points behind Liberal rival Tony Abbott in the polls. Voters in Western Australia, many of whom work in the mines, have aligned with Abbott, who has promised to scrap new taxes on mining profits.

Strong economic growth of 3.6 percent in 2012 has pushed the Aussie dollar to record highs. Since the Lehman Brothers collapse in September 2008, the currency is up 72 percent against the greenback and 82 percent vs. the yen. Policymakers and executives at an April 10 Bloomberg conference in Sydney singled out the local dollar’s strength as the biggest challenge for business. The “continued strength of the Australian dollar is just decimating domestic manufacturers that face strong import competition,” said Terry Davis, managing director at Coca-Cola Amatil, the brand’s local bottler. Robert Mead, head of portfolio management in Sydney at Pimco, said businesses squeezed by the currency are deferring spending.

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