In the mining town of Port Hedland, 1,500km north of Perth, modest prefabricated homes called fibro shacks, which were changing hands for more than A$1m four years ago, are now failing to find a buyer at a third of the price.
Apartment blocks hurriedly tacked together by developers at the peak of the country’s boom stand empty, because their promised supply of “fly-in-fly-out” mineworkers has dried up, along with the jobs they were brought in to do.
In 2011, the iron ore-rich Pilbara region of north-west Australia was on the frontier of a 21st century gold rush, this time with iron ore as the main prize – driven by China’s formidable appetite for natural resources to build up its infrastructure and modernise its economy.
Pilbara boasted salaries two-thirds higher than the national average and almost 80% of workers were flown into their jobs from Australia’s big cities. Now, mortgaged to the hilt on homes that lost value almost before the paint had dried, the mineworkers that remain are accepting longer hours and lower wages in an effort to keep up with the repayments.
Their plight resonates thousands of miles away in Calgary, Canada. Oil, not iron ore, has been the foundation of that city’s prosperity. But fears that China’s appetite for natural resources is waning are sapping confidence; and as oil prices have plunged, another property boom could soon turn to bust.
“There’s a lot of people here that have been losing their jobs from the energy sector,” says Ann-Marie Lurie, chief economist at local estate agency CREB. Property prices have so far held up, but she says Calgarians are watching the global oil price with alarm.
“Into next year the real question becomes, how long are energy prices going to remain this low?” she says, pointing out that, with building starts declining, the knock-on effects are already rippling through the construction industry. She expects house prices in Calgary, which rose by almost 10% in 2014, to go into reverse by the end of this year.
Official figures showed last week that Canada’s economy has now slipped into recession, having recorded two successive quarters of negative growth and confirming the weakness that the prime minister, Stephen Harper – who is fighting a tough re-election battle, has been reluctant to confront.
Even after the official statistics were published, Harper insisted Canada was an island of stability amid the global economic turmoil, and refused to use the term recession. He says: “I think it’s more important to describe the reality of the situation, rather than to have labels.”
Herbert Emery, a professor of economics for the school of public policy at the University of Calgary says: “Politicians have been trying to keep us at ease to avoid a downturn in spending. The sensitivity is, now that this is official, it will make things worse.”
Like Australia, Canada weathered the financial crash of 2008 well, avoiding the banking crises suffered by the US, UK and the eurozone, instead growing fast on the back of exports of abundant natural resources.
Indeed, the resilience of the Canadian economy in the face of the downturn contributed to the reputation of its central bank’s then governor, Mark Carney, as the “rock star central banker”, who was lured to London to run the Bank of England.
But as the price of natural resources – including oil and iron ore – has dropped over the past twelve months, both countries have been hit hard. Their currencies have plunged, growth has slowed or ground to a halt and economists are warning that there may be worse to come.
The experience of both countries is reminiscent of a syndrome economists call Dutch disease: the dark side of the riches that can flow from abundant natural resources.
Whether it’s coal or cocoa, iron ore or gold, when demand for natural resources is strong – as it has been through the long years of the Chinese economic miracle – workers, investment and political attention pour into extracting and exporting the precious stuff.
The value of the currency tends to rise, as foreign buyers use it to pay for these valuable raw materials. Other potential export industries can be hollowed out, as they struggle to remain competitive against international rivals — Canada’s manufacturing industry has faced mass job losses, for example.
But commodities prices can be subject to violent changes - the oil price has more than halved since last summer, for example - and it is in the downswings when the resilience of resource-rich economies is seriously tested.
The price of a barrel of oil has declined sharply, from $115 last summer, to less than $50 today. Iron ore prices have been declining since they peaked in 2011; and have halved over the past fifteen months.
“The reality is that when the price of energy products drops, our economic activity drops,” says Emery.
Paul Dales, Australian economist at London-based consultancy Capital Economics, says: “The mining boom is over in Australia: it just rose on the back of China’s coat-tails”. He believes the country will eventually be well-placed to resume growth, as tourists and foreign students - not least from China - are attracted by the cheaper Australian dollar.
Relatively healthy public finances, and a central bank with room to cut interest rates, as it did twice earlier this year, taking them to a record low of 2%, also mean the country has ammunition to tackle a slowdown.
The depreciation in the Australian dollar is also helping. The governor of the Reserve Bank of Australia, Glenn Stevens, has repeatedly said he believes it was “both likely and necessary” for the currency to decline.
Nobel prize-winning economist Paul Krugman recently played down the risks to Australia of a Chinese downturn. He said: “It’s not helpful to have the price of commodities that Australia exports go down … that said, Australia is a big, very diverse economy, it has other exports and it has a flexible exchange rate.
“So if you look at what’s happened in the past couple of years – certainly Australia has taken a hit from weakness in its exports but it has also had a major depreciation of the Australian dollar and that offset a lot of it.”
However, shifting an economy from one source of growth to another, in this instance from natural resource extraction to services exports, is rarely a smooth process. “You can’t just switch off one engine and switch on another,” says Dales. “I think Australia might manage to avoid recession, but I do think it has a few years of relatively weak growth ahead of it.” The most recent official figures showed growth of just 0.2% in the second quarter – half the rate expected by experts.
And as the August turmoil in the world’s financial markets made clear, there are fears that China may be set to experience a deeper and more damaging slowdown than Beijing has publicly acknowledged, which could have a profound impact on a whole string of countries that have built their growth model on China’s rise.
Even if a formal recession can be avoided in Australia, the human cost of the ending of what many market experts called the “commodities super-cycle”, and the boom-times it brought with it, will be severe.
Graduates who began their four-year degrees with the promise of work are now looking elsewhere. At the height of the boom, most mining specialists left university with an employment contract already signed. Now they’re moving back in with their parents.
“If you’re a geologist grad, you might as well look for work in a coffee shop,” one consultant to the mining industry said. “You’re not going to get a job on a mine.”
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