The Economic Slowdown No One’s Talking About
It seems major economic hubs in the global economy are facing hardships, and they are moving towards an economic slowdown. But during discussions about where the next trading opportunity will be, some countries never get mentioned. For example, there is significant talk about an economic slowdown in the Chinese economy and the Japanese economy and how investors can profit. However, the Australian economy goes unnoticed even though it’s facing an economic slowdown as well, and it looks like conditions in the country are getting worse.
Unemployment in the Australian economy is increasing. The Australian Bureau of Statistics reported that in December, the country’s unemployment rate increased to 5.8%—0.1% higher from the previous month. The number of those employed full-time declined by 31,600. Part-time workers increased in the month, and the unemployed increased by 8,000 in December, reaching 722,000. (Source: “Australia’s unemployment rate increased slightly to 5.8 per cent in December 2013,” Australian Bureau of Statistics web site, January 16, 2014.)
The demand for work in the Australian economy is also very slow—a classic situation during an economic slowdown. Job advertisements in the country declined 0.7% in December after declining 0.8% in November. For the year, job advertisements in Australia have declined by nine percent. (Source: Kwek, G., “Job ads: signs of stabilisation,” Sydney Morning Herald, January 13, 2014.)
Another indicator of an economic slowdown, manufacturing activity is not so great in the Australian economy either. The Australian Industry Group Australian Performance of Manufacturing Index (PMI)—an indicator of manufacturing in the Australian economy—contracted for the second consecutive month. The index sat at 47.6 in December. (Source: “Manufacturing Remains in Contraction,” Markit Economics, January 2, 2014.) Any reading below 50 on the PMI represents a contraction in the manufacturing sector.
In addition to all of this, there’s also one more factor that can cause an economic slowdown in the Australian economy to pick up speed: the country’s reliance on natural resources. Australia is a major producer of natural resources. Currently, we have seen a decline in their prices. If this continues, companies operating in the country will have to adjust, and this may result in further unemployment and, therefore, a deeper economic slowdown.
How can American investors profit from the economic slowdown in the Australian economy?
If the Australian economy suffers more and the economic slowdown deepens, the Australian dollar will decline in value. It has already shed significant value compared to other major global currencies; just take a look at the chart below.
The currency has broken below a key support level, and it now sits near its 43-month low.
Investors can profit from the deteriorating Australian currency by shorting exchange-traded funds (ETFs) like the CurrencyShares Australian Dollar Trust (NYSEArca/FXA). By shorting this ETF, investors will profit as the Australian dollar declines in value.