We had a surprisingly optimistic economic forecast from the second most senior official in the Reserve Bank.
Reserve Bank of Australia deputy governor Ric Battellino said in a speech in Melbourne yesterday it is now 18 years since Australia has experienced negative year-end gross domestic product growth, marking a very prolonged period of economic expansion.
This expansion will continue, he said and the recovery now re-emerging in the economy will be one that will go on "for a few more years".
Led by China, the rebound in Asia is positive for Australia, which dodged the bullet from the global economic downturn this year to emerge in a far stronger state than previously expected.
We saw this amplified yesterday with better than expected figures on the value of construction work done in the September quarter, and a 4th monthly rise in the demand for skilled labor (See below).
They were much more solid than the market thought.
The Australian dollar rose, and if you think about Mr Battellino’s comments, they mean we face the prospect of the currency remaining above 90 US cents for quite a while.
It rose above 92 US cents overnight and then headed over 93c in US trading this morning.
Gold jumped to around $US1,190 an ounce, the US dollar fell and shares were mixed.
Equally, we face a long period of gradually rising interest rates, especially if bottlenecks produce rises in labour and building costs, and then inflation.
Singapore, Thailand, Malaysia, South Korea, Japan and Taiwan are all now experiencing economic growth after the bitter slumps in the early months of 2009.
China is helping drag the region out of the red, with Australia being tugged along as well.
Mr Battellino said in the speech that "With the economy having only recently entered a new upswing it is reasonable to assume that we will see this growth extended for a few more years.
"Over the next few years, Australia is also expected to see a further expansion of the resources sector, including the development of some very large gas projects.
"Mining investment, which is already at record levels as a share of GDP, could rise substantially further in the next five years or so.
"If this scenario eventuates, it will have powerful and broad-ranging implications for the economy," he told delegates attending the 6th National Housing Conference in Melbourne.
"The rate of growth in the population, which has already picked up in recent years, is likely to remain strong, as demand for labour will encourage continued high immigration;
"Household incomes are likely to rise solidly, which will help underpin the demand for housing; and The construction industry is likely to face substantial competition for workers from the mining sector.
"There is a broad consensus that in recent years Australia has not built enough dwellings.
"A good indication of this is the very low vacancy rates in rental markets.
"This shortfall in housing, however, is not because, as a nation, we have cut back on investment in dwellings.
"In fact, the opposite is true: over the past decade dwelling investment has been higher – around 6 per cent of GDP – than it has typically been in the past.
"In short, the apparent contradiction between the shortage of dwellings and the high investment in dwellings arises because a high proportion of dwelling investment is going into improving the quality of existing dwellings and building accommodation additional to primary residences.
"If as a nation we want to continue to do this, while at the same time providing enough dwellings for the growing population, the overall amount of dwelling investment undertaken will need to increase relative to GDP.
"That would raise important challenges for the housing industry in terms of its capacity to meet that demand.
"It would, of course, also raise the question of which of the other expenditure components of GDP should bear the offsetting fall in share."
In other words, if we are to invest heavily in resources, and then all continue investing heavily in growing housing, other sectors will have to but cutback.
The most logical is for non residential construction (office blocks etc), manufacturing and parts of the service sector, to be impacted, with associated job losses and then retraining needed.
Or more workers imported from overseas (New Zealand, Asia, and the UK?)
