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Australia’s middle class set to grow as our resources boom translate to riches

While the world sits poised on the brink of yet another global financial crisis, Australia’s economy is in the throes of its own transition – one that will see our financial wellbeing underpinned by our wealth of wide open spaces and vast natural resources.

This history making economic transformation has the potential to generate $480 billion worth of exports in the next two decades and create a staggering 750,000 new jobs according to a report in The Australian.

As developing nations race toward urban industrialisation, experts say demand for our resources will soar and the resulting mining boom will be monumental, causing a new economic climate to emerge here in Australia with mining at its foundation. 

A new report by ANZ Bank and economic consultants Port Jackson Partners entitledEarth, Fire, Wind and Water, says the positive financial impact will not be limited to mining however, with a much needed wealth injection to the services, education and tourism sectors on the cards as well.

The report finds that the Australian economy requires an investment of almost $2 trillion in order to capitalise on the mining boom and forecasts commodity export earnings to grow from last year’s $210 billion to a mammoth $480 billion by 2030.

Additionally, it’s expected that the resources based workforce, which currently numbers 693,000, will double to 1.45 million over the next twenty years.

This is no run of the mill boom
“This is not the stuff of a routine commodities boom but rather a more fundamental global process under way that will see billions more people achieve middle-class living, and it has decades to run,” the report says.

However the one potential road block to this newfound national prosperity could come in the form of policymaking, designed to slow the boom and curb the anticipated breakneck speed with which our economy has the potential to grow.

The report urges our government to encourage investment, thereby increasing Australia’s economic output in the face of what ANZ’s chief executive Mike Smith calls a “major structural shift” that will see us enter a “supercycle”.

“Australia is currently experiencing the kind of ‘problem’ that makes us the envy of the rest of the developed world,” Mr Smith writes in The Australian.

“If Australia can expand capacity rapidly enough, export revenues from hard and soft commodities could reach half a trillion dollars in real terms by 2030.

“The scale of investment required is unprecedented.”

If the “powers that be” can manage to inject the necessary $1.8 trillion into our economy, ANZ predicts that the current slowdown of the Aussie dollar will turn around and see it hit $US1.25 off the back of sustained commodities prices and higher global infrastructure investment.

Major financial boosts are required around the development of new mines, along with agriculture as our expanding population places greater demand on secure food supplies.  The report also states that there needs to be a greater focus on increasing our skilled workforce and waning productivity levels, as well as advances in research and development and accelerating the planning and water access approval process for both mine and farm development.

“Clearly there’s more Australia needs to do to shape our economy more strategically so we can manage this structural shift and maximise the opportunity for all Australians,”says Mr Smith.

The next waves of the boom are forecast to create 758,000 full-time jobs in export-related sectors over the next two decades, with nearly 400,000 of those positions on investment projects alone.

ANZ chief economist Warren Hogan said governments need to increase infrastructure, school and hospital spending to attract workers in regions already facing skills shortages, which would only worsen as mining investment grew.

“One of the most important parts of this is the mobility of labour,” he said. “We have a shortage of labour in some areas but we will also see some job losses in other areas.

“There is a lot of noise around about this economy, but the bottom line is we are doing okay and will go from strength to strength.”

Although August’s unemployment rate grew from 5.1 per cent to 5.3 per cent, the economy grew by a confidence inspiring 1.2 per cent for the June quarter due to a boost in consumer spending for the period.

What do I think?

The equity markets around the world are in turmoil. Some countries are in recession and others are likely to default on their debts.  There is no doubt our economy will have some short term hiccoughs due to all these economic troubles.

While Australia seems, and is, a long way from these problems, confidence here is low in the fear that we’ll be dragged down by these overseas problems. Our share markets have tumbled and our property markets are flat.

And it should come as no surprise that things are unlikely to get better for a while, so what should an investor do?

So while I see challenges ahead in the short term for our property markets, I have confidence in the medium and long term.

We are well placed to handle the short term challenges as our banks are cashed up and less dependent on overseas markets. At the same time the average household is saving more, and in a better financial position to handle the storms ahead that at the beginning of GFC mark 1 in 2008.

As for the long term…a nice little wealth injection in the form of the biggest resources boom we have ever experienced won’t hurt.



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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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