Boom in Australia goes bust as global slowdown hits

"China's economy has slowed much more quickly than anyone had forecast," says Glenn Stevens, governor of Australia's central bank. Add in China's plummeting stock market and crumbling housing prices, and "There goes Australia's China blanket," economist Keen says.

"We were living in a bubble in Australia, thinking that we'd manage because of China and because of our resources," says Nick Read of Drill Technics Australia, a Queensland maker of drill rigs. "The fact is, resources have hit rock bottom, and China is struggling also. It happened very fast."

Australian policymakers have responded aggressively to the economic threat. Stevens' Reserve Bank of Australia has been chopping interest rates. And the government of Prime Minister Kevin Rudd is spending more than $10 billion to jump-start the economy.

For now, businesses are hunkering down. Anglo-Australian mining giant Rio Tinto just announced plans to slash 14,000 of its 112,000 jobs. Drill Technics, its rigs running just half the time, has cut its drilling crew to 15 from 32. Davies has laid off 15 of his 27 workers. "If you want to be in business after Christmas, you have to cut costs," he says.

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