High dollar helps to make business 'lean'

The high Australian dollar is forcing corporate Australia to become "leaner and meaner", economists say, prompting manufacturers such as CSR to cut hundreds of jobs.

CSR said it planned to shed 150 staff from its Viridian glass business, west of Sydney, blaming the "persistently high Australian dollar" and weak construction market for the glass business's multimillion-dollar losses.

However, HSBC chief economist Paul Bloxham, formerly with the Reserve Bank, said the dollar could not be blamed for every economic problem. Mr Bloxham said the high dollar may be helping fix Australia's weak productivity problem.

Figures released last week by the Bureau of Statistics showed labour productivity had improved 3.5 per cent in the 12 months to December. That compares with just 0.9 per cent labour productivity growth in 2011.

"Business models are being reassessed and those that do not work well are being adjusted. These sectors are becoming leaner and meaner," Mr Bloxham.

Even so, CSR said the stronger dollar had made it cheaper to import glass products on a "permanent" basis while construction activity was likely to grow at a slower-than-expected pace.

"A persistently high Australian dollar ... has put downward pressure on pricing and has enabled alternative import supply chains to be established which are now expected to become a permanent feature of the glass market in the future," the company said. "Increasing energy and manufacturing costs ... have exacerbated Viridian's competitive position relative to imports."

Net profit would now be lower-than-expected for fiscal year 2013, between $30 million to $34 million, the company said, down from guidance issued four months ago when net profit was forecast at between $35 million to $54 million.

CSR's share price dropped 9¢, or 4.3 per cent, immediately after the announcement of its job losses, but recovered through the day to close 2.9 per cent higher, at $2.16.

The 150 jobs will be lost after CSR closes its glass manufacturing facility in Ingleburn and consolidates two other western Sydney plants by January 2014. Rival Boral said in January it would axe as many as 700 jobs - or one-in-three back-office positions - as it seeks to "right-size" the company at the bottom of the building cycle. NSW, where Boral's head office is based, would bear the brunt of the cuts.

HSBC's Mr Bloxham said there were signs the stronger dollar was helping to fix the country's weak productivity problem by forcing firms, particularly manufacturers and retailers, to restructure in the face of greater competition. "The Australian dollar has now been high for quite some time ... it has been above parity for almost two and a half years," Mr Bloxham said.

"While further government reform of the labour market and regulatory environment as well as improved infrastructure would help boost productivity, its seems market prices - in this case the floating exchange rate - are already helping, as the high Australian dollar has exposed many industries to more fierce international competition."

National Australia Bank expects unemployment rose to 5.5 per cent in February, from 5.4 per cent, despite a small gain in employment.