Monday, July 25, 2011

Strong for years to come... in one sector - Access

Two speeds, not multispeed

Access Economics has dismissed talk of economic weakness and interest rate cuts forecasting robust economic growth of 3.1 to 3.5 per cent for years to come.

But the firm says almost all of the growth will be in two sectors: mining and mining-related construction.

“Most of Australia’s growth engines are misīŦring,” Access says in quarterly Business Outlook “Families are saving rather than spending; stimulus has run its course and its absence will be keenly felt; housing construction is limping as interest rates drown out population pressures; and our export gains are mostly being matched by lost sales to tourists, manufacturers and international students.”

“Add in the huge costs of floods and cyclones, and no wonder people are shaking their heads at hints that the Reserve Bank may raise rates further. But one growth positive is enormous - miners want to spent a fortune on adding to their capacity. It will power continuing recovery even if they only achieve a fraction of what they are aiming for. Business capex alone accounts for two-thirds of our growth forecasts. It should be achievable.”

Access director Chris Richardson told The Age he had been extremely conservative in assuming planned investment would be realised. It seemed to him that little could stop strong overall economic growth no matter how weak were most parts of the economy...

“The Reserve Bank will not cut rates while growth is strong,” he said. “It will sit on the sidelines until inflation picks up, then it will raise them.”

The July Reserve Bank board minutes released Tuesday say the June quarter inflation figure to be released Wednesday will be “important in helping to shape views about inflation, and therefore the future path of interest rates”.

The median forecast of the 22 economists surveyed by Reuters is for a high headline annual rate of 3.8 per cent, masking a slight fall in the underlying rate to 0.7 per cent for the quarter.

Published in today's SMH and Age

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