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Bree.gov.au Australia and the Millennium Mining Boom Professor Quentin Grafton Executive Director/Chief Economist Bureau of Resources and Energy Economics.

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Presentation on theme: "Bree.gov.au Australia and the Millennium Mining Boom Professor Quentin Grafton Executive Director/Chief Economist Bureau of Resources and Energy Economics."— Presentation transcript:

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

2 bree.gov.au 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 bree.gov.au I. Price Forecasting - Best and Worst of Times

4 bree.gov.au “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 bree.gov.au Selected commodity prices: peaks & troughs ( nominal US dollars) Notes: prices are from the following dates Copper: 3-Jul Dec Feb Aug-2012 Aluminium: 11-Jul Feb Apr Aug-2012 Zinc:24-Nov Dec Jan Aug-2012 Nickel: 16-May Oct Feb Aug-2012 Uranium: Jun-2007Mar-2009Jan-2011Aug-2012 Source: BREE

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

7 bree.gov.au Historical Iron Ore Prices Source: BREE

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

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

10 bree.gov.au II. Macroeconomic Outlook & Overview

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

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

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

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

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

16 bree.gov.au III. Millennium Boom

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

18 bree.gov.au Australian Merchandise Exports to China ($ ) Source: BREE

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

20 bree.gov.au Mean Weekly H-Hold Income ($ ) Source: BREE; ABS

21 bree.gov.au

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23 Value of Exports ($ ) and Mining Employment Source: BREE; ABS

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

25 bree.gov.au Australian Capital Expenditures in Mining and Completed Major Mining Projects ($ ) Source: BREE; ABS

26 bree.gov.au Cumulative real value of completed projects ($ ) Source: BREE

27 bree.gov.au Prospects: Value of advanced projects if NO NEW projects were announced ($ ) Source: BREE

28 bree.gov.au Commodity Production: Past Trends Source: BREE

29 bree.gov.au Bulk Commodities Exports Source: BREE

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

31 bree.gov.au IV. Sustaining Australia’s Future

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

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

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

36 bree.gov.au V. Closing Remarks (1)Millennium Boom has been unambiguously good for the Australian economy with real income growth of about 40% over the past decade. (2)The ‘easy’ gains of ever increasing real prices is past. Forecast declining terms of trade requires Australia to substantially increase its productivity growth. (3)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 bree.gov.au Thank You


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