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Australia’s on the brink of an economic boom

While the recent March quarter contraction of Australia’s economy, with reports of a potential recession looming, gave the media and many bloggers some great fodder for their doom and gloom speculation, industry experts are suggesting that in reality, the glass is actually more than half full.

Optimistically, the head of Treasury recently announced that we are on the brink of a boom that is set to last decades. And in the long term this will be very good for property.

In an article in The Age newspaper, Martin Parkinson said Treasury had anticipated the March quarter downturn, with the view that both the first three months of the year and the June quarter would be weak.

However high export prices, increased output in the mining industry and a “once-in-a-century” global realignment will see, “a strong rebound with very positive growth prospects in 2011-12 and 2012-13.”

Although there had been, in Parkinson’s words, many “extravagant claims” about the effects a carbon tax would have on the impending good fortunes of our economy, he says these don’t stand up to scrutiny.

The robust resources sector already has around $380 billion of mining investment currently under way or committed over the next five years. And over the coming year, $83 billion is being invested to enhance mining capacity which is an increase from $51 billion for the 2010-11 financial year.

Parkinson says this increased investment has been 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.

If you think about it, this is money coming in from overseas and being spent on major projects in Australia. And this is just for the initial infrastructure. Then there will be the ongoing economic benefit of operating these resources projects. This is a very different situation from a couple of years ago where more money was flowing out of Australia than was coming in.

Meanwhile, Treasury chief economist David Gruen says that the Australian economy is “in the midst of long lived change”, and claims the Aussie dollar is unlikely to return to its historical long-term average “any time soon”.

While much is being made of the mining boom driving Australia’s economic prosperity forward, Parkinson says the import placed on this one sector is “quite bizarre”.

“Mining is 8 per cent of gross domestic product,” he said. “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.”

One thing is certain when it comes to the future of our fiscal fortunes. We are now, more than ever, benefiting from the incredibly rapid growth of the new kid on the block. China’s accelerated growth is proving a boon for Australia and as long as their economy continues to boom, and it should for years to come (with the occasional hiccough along the way), ours will also remain strong. And of course we’re also benefitting from India’s urbanisation and economic growth.

A prosperous nation, a strong economy and wages growth are fundamental requirements for a strong property market, so putting all this together, the long term prospects for Australian property look good.

 



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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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