Why Rio Tinto’s decision to sack 14,000 has implications for your business

The extraordinary announcement that Rio Tinto will sack 14,000 workers sent shockwaves through markets around the world.

The extraordinary announcement that Rio Tinto will sack 14,000 workers sent shockwaves through markets around the world.

It is also an extremely worrying sign for Australian business and the economy. Growth in the Chinese economy, which has fuelled Australia’s growth for the past five years, is suddenly faltering.

As well job cuts, Rio Tinto says it will put capital expenditure plans on hold and sell assets in order to pay off around $US10 billion of debt. The company is currently labouring under a pile of $40 billion debt.

Most worrying were comments from Rio chief Tom Albanese, who pointed to a rapid deterioration in commodities markets in the last 60 days as global economies – and particularly that of China – slowed measurably.

“The world has changed… and there has been a change in expectations.”

While Rio’s cutbacks will have a profound effect on all players in the resources sectors, companies throughout the Australian economy should take note – China’s economy is slowing much more quickly than economists predicted.

Albanese is hopeful the Chinese economy will rebound in the second half of the year, as the Chinese Government rolls out a host of fiscal stimulus measures designed to spark some growth.

But Australia’s export performance is almost certain to fall in the first half of 2009, putting more pressure on company profits, employment, government revenue and investor sentiment.

If the Chinese economy remains stalled into the second half of 2009, Australia’s road out of recession will be even more difficult.

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