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Australia and the Millennium Mining Boom

Australia and the Millennium Mining Boom. Professor Quentin Grafton Executive Director/Chief Economist Bureau of Resources and Energy Economics. Keynote presentation to ANCRE 2012 18th September 2012. Overview. I. Price Forecasting - Best and Worst of Times

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Australia and the Millennium Mining Boom

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  1. Australia and the Millennium Mining Boom Professor Quentin Grafton Executive Director/Chief Economist Bureau of Resources and Energy Economics Keynote presentation to ANCRE 2012 18th September 2012

  2. Overview I. Price Forecasting - Best and Worst of Times II. Macroeconomic Outlook & Overview III. Millennium Mining Boom IV. Sustaining Australia’s Future V. Closing Remarks

  3. I. Price Forecasting - Best and Worst of Times

  4. “Boom still on boil” AFR 10/9/12 “Iron ore prices have recovered some ground” The Australian 12/9/12 “The mining boom will not go on forever” BHP Billiton chairman Jacques Nasser Adelaide Advertiser 13/9/12

  5. Selected commodity prices: peaks & troughs (nominal US dollars) Notes: prices are from the following dates Copper: 3-Jul-2008 24-Dec-2008 14-Feb-2011 29-Aug-2012 Aluminium: 11-Jul-2008 24-Feb-2009 28-Apr-2011 29-Aug-2012 Zinc: 24-Nov-2006 12-Dec-2008 7-Jan-2010 29-Aug-2012Nickel: 16-May-2007 24-Oct-2008 21-Feb-2011 29-Aug-2012 Uranium: Jun-2007 Mar-2009 Jan-2011 Aug-2012 Source: BREE

  6. Tianjin Iron Ore Spot Prices (CFR) Source: Bloomberg

  7. Historical Iron Ore Prices Source: BREE

  8. Iron ore price & USD/AUD exchange rate Correlation coefficient 0.74 Source: BREE

  9. What if? Iron ore prices and exchange rate Source: BREE

  10. II. Macroeconomic Outlook & Overview

  11. Economic Growth in Key Export Markets Source: IMF; BREE

  12. 10 year bond yield spreads to Germany Source: Bloomberg

  13. Debt Cycles and the Burden on Central Banks Source: Bank of International Settlements

  14. Value of R & E exports: actual & forecast Source: BREE

  15. Volumes, Prices & Values of Key Exports Source: BREE

  16. III. Millennium Boom

  17. Australia’s Terms of Trade Source: BREE; RBA

  18. Australian Merchandise Exports to China ($2010-11) Source: BREE

  19. Economic Variables: Before & During Boom(1.00 = initial year) Source: BREE; ABS

  20. Mean Weekly H-Hold Income ($2011-12) Source: BREE; ABS

  21. bree.gov.au

  22. bree.gov.au

  23. Value of Exports ($2011-12) and Mining Employment Source: BREE; ABS

  24. Commodity Prices (real): Past Trends & Projections Source: BREE

  25. Australian Capital Expenditures in Mining and Completed Major Mining Projects ($2011-12) Source: BREE; ABS

  26. Cumulative real value of completed projects ($2011-12) Source: BREE

  27. Prospects: Value of advanced projects if NO NEW projects were announced ($2011-12) Source: BREE

  28. Commodity Production: Past Trends Source: BREE

  29. Bulk Commodities Exports Source: BREE

  30. Phases of the Millennium Boom bree.gov.au Source: BREE; ABS

  31. IV. Sustaining Australia’s Future

  32. Nineties versus Noughties Contributions to growth in average incomes by decade (percentage points, annual average) 4 3 ] Contributed 1.2% per year growth in average incomes GNI per person 2 1 Labour productivity 0 Terms of trade Labour utilisation Foreign income flows - 1 1990s 2000s Source: Australian Treasury

  33. Three Ps: 1992-2002 and 2002-2012 Population Income 16% 12% Participation Terms of Trade 86% 3% 46% 1% 49% 4% Productivity 18% - 3% 1992-2002 Income: Real gross national income: Chain volume measures Productivity: Multifactor productivity, quality hours adjusted hours worked 2002-2012 Source: BREE; ABS

  34. Productivity Growth Productivity growth is supported by public and private sectors working together to: (1) Avoid infrastructure bottlenecks; (2) Ensure a tax system that rewards & supports productive activities; and (3) Skills & innovation framework for students and workers and that encourages R&D and on-the-job innovation

  35. Potential outcomes for income growth Maintain 2011-12 Goldilocks 3.7% Terms of Trade Productivity Agenda Bears ‘Bad News’ Decline High (1990s) Low (2000s) Productivity Growth Source: BREE

  36. V. Closing Remarks Millennium Boom has been unambiguously good for the Australian economy with real income growth of about 40% over the past decade. The ‘easy’ gains of ever increasing real prices is past. Forecast declining terms of trade requires Australia to substantially increase its productivity growth. Investment phase of the boom has not yet peaked. Past and current mining investments could eventually lead to tripling of Australia’s export volumes from start of Millennium Boom to the 2020s.

  37. Thank You • (quentin.grafton@bree.gov.au)

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