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MFAA Prosper : Mortgage and Finance Brief 06
Economic outlook 2011 The Australian economy is in the middle of the largest resources boom we have seen in over 100 years. But what effect will it have on the housing market? Words Justin Smirk, St George Bank Chief Economist Even though the king of all commodities booms was the 1950s Korean War wool boom, you have to go back to the gold rushes of the 19th century to find a minerals-based boom anywhere near as large as this one. This boom has not been all one way, as we arrived at a very similar economic juncture in 2008 before the very rude interruption of the GFC. As such, we can use 2008 as a rough guide on what to expect over the next few years. Back then, the RBA was agg ressively lifting interest rates in an effort to stem accelerating inflation and the currency was appreciating with parity in its sights. In the following article, I intend to outline the basis for the boom, why I believe this one can last for some time and how it feeds into broader economic grow th. The article will also address what is different this time and why the RBA will not be as aggressive on rates. That is, while rates will rise they will not rise as much as they did in 2008. Waking the sleeping giants of China, Brazil and India The industrialisation and urbanisation of the world’s two most populous nations brings almost three billion people into rapid income growth and resulting g rowth in the demand for raw materials. This has caused a dramatic lift in prices, breaking a centuries-long downtrend in the real value of commodities and stimulating massive investment in the resources sector globally. History has a clear message: all commodity booms eventually end. So why are we so confident that this one has much longer to run? Resources/mining booms ty pically end as economies mature, old infrastructure and goods are recycled for their raw materials and rising wealth means consumers demand more value- added goods and services. A lso as miners become more confident, prices can remain higher for longer so they lift production, and we observe a surge in production just as demand peaks. However, the current urbanisation in China has at least 10 to 15 years to run and just as this process Mor tgage & Finance brief | 19 News 130 110 90 70 50 30 1870 Post WW1 wool boom index Korean War wool boom Early 70s nickel boom Long-run average Rise of China & India Forecasts GFC Last gold rush (WA) 1910 1950 1990 1890 1930 1970 2010 THIS IS A ONCE-IN -A-CENTURY BOOM Terms of Trade measures the relativity of export and import prices. It is at a 70-year high. Migration also surges with terms of trade. The last migration surge was in the 1950s and saw a record terms of trade. Sources: IRBA, ABS, St George Economics
Mortgage and Finance Brief 05
Mortgage and Finance Brief 07