The head of the Treasury has relegated the March quarter economic downturn to the past saying Australia is about to enter a boom that should last decades propelled by high export prices, enhanced mining capacity and a once-in-a-century global realignment.
The Australian dollar is unlikely to go back to where it was, and manufacturing will shrink in importance to the economy, perhaps even faster than it has been.
Speaking to Senators as official statistics were released showing a rebound in coal and iron ore exports and an uptick in consumer spending Martin Parkinson said Treasury had always expected the March quarter downturn reported Wednesday, although it had been “marginally larger” than it predicted.
There was nothing in the Wednesday’s news to change its view that the March and June quarters would be weak followed by “a strong rebound with very positive growth prospects in 2011-12 and 2012-13”.
There had been a lot of “extravagant claims” about the impact of a carbon price.
Those claims did not stand up to scrutiny.
Around $380 billion of mining investment was already underway or committed over the next five years.
In the coming year $83 billion would be invested in enhanced mining capacity, up from $51 billion in the financial year about to end.
It was being driven by “an expectation of continued very strong growth in demand for commodities worldwide - we are talking about China, India and a range of other countries that are rapidly improving the living standards of their people”.
“Because those projects are for mines that will exist for 20, 30, 40 even 50 years, they will not be knocked off course by short-term disruptions,” he said...
Treasury chief economist David Gruen told the Senate committee that while Australia’s record high commodity prices might fall back somewhat in coming decades “our assumption is the next 10 years don’t look like the past 10 years: we think the Australian economy is in the midst of a long-lived change”.
The exchange rate would not be going back to its long-run historical average “any time soon”.
The figures released as the Treasury secretary spoke showed iron ore exports rebounding 3.8 per cent in April on top of an 18 per cent recovery in March. Coal exports improved a further 1.4 per cent after rebounding 14 per cent in March. The retail spending figures purported to show a 1.1 per cent bounce back in April, but a large chunk of that was due to an unlikely 21 per cent jump in spending on shoes in Victoria, suggesting the results of the sample survey should be treated with caution.
While mining was part of Australia’s economic transformation Dr Parkinson found the “whole discussion about the importance of mining quite bizarre”.
“Mining is 8 per cent of gross domestic product,” he told the hearing. “It’s a very important 8 per cent, but there’s a very important 92 per cent of GDP which is out there which for some reason we have stopped talking about.”
All parts of Australia’s economy would be transformed as it retooled itself to sell to a Asian middle class that would become bigger than that the United States bringing on an “acceleration in the long term decline in the importance of manufacturing”.
Although the Treasury Secretary would not “draw a direct link between climate change and the things we have seen over this summer,” it was inevitable that the budget would face greater pressure in the future from climate related events such as “bush fires or flooding or damage to infrastructure”.
Published in today's SMH and Age
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