Australians are leaving the country as never before. The soaring Aussie dollar and low international airfares pushed the number of Australians taking holidays overseas up above 600,000 in September with the number leaving in the past year hitting a record 6 million.
In its quarterly assessment of the economy released yesterday and prepared ahead of the latest tourism numbers the Reserve Bank said overseas departures had jumped 17 per cent since January. The trend in departures is now further ahead of arrivals than it has ever been, and there is little sign of the Aussie dollar flagging.
The Reserve Bank report says the Australian dollar has climbed further than any other currency against the US dollar in recent months, jumping 31 per cent since March.
Only the South African rand, the Brazilian real and the New Zealand dollar come close.
US economist David Hale in Australia as a guest of the Commonwealth Bank told a seminar in Canberra to expect parity with the US dollar by January.
The Aussie closed Friday at 91.36 US cents after climbing from 68.7 US in March. Mr Hale said the Aussie was the Aussie would keep climbing beyond 100 US until serious doubts emerged about the health of Chinese economy.
"Traders use the Aussie as a proxy for China," he told the business audience. "It's no longer about the Australian economy"...
Asked whether Australian manufacturers as well as local tourism operators stood to be hurt by the soaring dollar he said he was amazed at how weak the export lobby was in Australia. "They are not being heard," he said. "Your Reserve Bank doesn't seem to regard your exchange rate as a constraint."
The Reserve Bank report says Australia's exports are well on the road to recovery with exports of coal and iron ore to Japan back to near where they were before the start of the global recession. Exports to China have climbed much higher.
The report warns that exports of some key commodities are approaching capacity but says investment already underway should ease those constraints allowing production of bulk commodities to increase by about one-third over the next two years.
The bank expects Australian economy to return to healthy growth more quickly than the Treasury predicting 3 per cent growth in year average terms during the 2010-11, somewhat more than the 2.75 per cent predicted by the Treasury in Monday's mid-year budget update.
Importantly it believes that even with that healthy pace of growth ,inflation will remain controlled and has factored into its forecasts only "gradual" rate hikes.
Fresh from talks with Reserve Bank officials Mr Hale said the Bank wanted to move its cash rate from 3.5 per cent to 4 per cent fairly quickly and would do so by February.
Suggesting the Bank might pause before hiking again the report says the Bank expects the the phased withdrawal of the government's stimulus measures is act as a drag on growth in the months ahead.
Further down the track it believes the economy will be able to grow faster than before with fast population growth and strong investment lifting the effective "speed limit" on economic growth.
Published in today's SMH and Age
DAVID UREN TODAY:
AUSTRALIA is rapidly emerging from the downturn into an economic boom the Reserve Bank believes could last for years, powered by the resource industry and rapid population growth.
The bank's quarterly review of the economy, published yesterday, has sharply upgraded its short-term economic forecasts and presented a radical rethink of Australia's growth potential.
It believes the economy is about to overcome the infrastructure bottlenecks that held back resource exports during the boom which preceded the financial crisis.
The Reserve Bank suggests that boom will be dwarfed by the developments to come.
The Reserve Bank has sharply upgraded its short-term outlook, with growth to average 3 per cent in 2010-11, which is slightly more optimistic than Treasury's tip of 2.75 per cent, published in the budget update released on Monday. The bank expects the revival in the resource industry to start taking effect over the next year, with the big iron ore and coalmine firms expected to win price rises of 10 to 20 per cent in the next round of contract negotiations, and Australia's terms of trade set to start rising again.
While iron ore exports have risen by 70 per cent over the past five years, the bank notes that coal exports have been held back by problems with shared rail and port infrastructure in Queensland and NSW.
"Over the next two years, if capacity comes on line as planned, production of these bulk commodities could increase by around one third, with further significant increases possible over the remainder of the decade."
LNG exports will grow three or four times once the $43 billion Gorgon project starts to come on line, and the Reserve Bank believes there is scope for more LNG expansion.
It says that there have been previous periods when many large resource projects were under consideration but the optimism faded and expansion plans were scrapped. However, it believes this is less likely now.
"This reflects three important considerations: the prospect of continued strong growth in China, India and other emerging economies in Asia; the fact that confirmed reserves of gas, iron ore and coal have already been discovered; and, for LNG, that projects generally lock in multi-decade contracts with buyers before construction commences."
Until now, both the Reserve Bank and Treasury have believed that ageing of the population and low productivity growth meant that Australia could no longer expect to grow at rates above 3 per cent without risking inflation.
"It will be less, and our growth aspirations would have to be adjusted accordingly," Glenn Stevens said in a speech shortly after being appointed Reserve Bank governor in 2006.
However, the bank said yesterday that the fastest population growth since the 1960s and rapid growth in business investment meant growth potential could now be much higher.
Business investment is building Australia's stock of plant and buildings at a rate of 5 per cent a year, double the rate of the 1990s and much higher than in any other advanced country.
The population is rising at more than 2 per cent a year, which is its fastest growth rate since the 1960s.
Even if productivity improvements are only modest, "growth in potential output in the immediate period ahead is likely to be above the standard estimates of recent years", the bank said.
The Reserve Bank's review follows comments on Wednesday by Mr Stevens to the Road to Recovery conference, presented by The Australian and the Melbourne Institute, that the growth in mining investment, which has risen from 1.5 per cent to 5 per cent of GDP over the past five years, could be eclipsed over coming years.
Mr Stevens suggested Australia might need to follow Norway in establishing an offshore fund to invest mining tax payments to minimise disruption to the economy.
Treasury shares the Reserve Bank's optimism about the long-term future for the resource sector, however the bank believes the upturn is more imminent and is also more confident about the rest of the economy.
Its quarterly review says business investment is turned around everywhere except commercial property, while Treasury says it remains weak outside the resource industry.
"Business investment is no longer expected to fall sharply, with spending supported by the improvement in business conditions, growth in Asia, the positive outlook for the resources sector and the fiscal stimulus measures," the Reserve Bank says.
Although it does not provide a forecast on unemployment, the Reserve Bank says its liaison program with private business shows that hiring is increasing, suggesting it believes there may be little if any further rise in the number of jobless.
The bank's central forecast is the economy can make the transition from downturn to resources boom without inflation breaking out of its 2 to 3 per cent target band, however it says investment could turn out to be even stronger than it expects.
"While this would have positive implications for longer-term potential growth of the economy, the higher level of investment spending and flow-on to the broader economy could see capacity pressures re-emerging in the near term, and a further appreciation of the exchange rate.
"In this event, underlying inflation would be expected to decline by less than in the central forecast."
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