Transcript Approach #1 - STEP Analysis - Melbourne Institute of Applied

2011 Economic and social
outlook conference:
Managing the growth shock
Chris Richardson
Deloitte Access Economics
30 June 2011
A global industrial revolution
Share of world output
100
Forecast
90
80
70
60
50
40
30
20
10
0
0
1500 1700 1870 1950 1998 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
China
India
Western Europe
US
Japan
Increasing urbanisation means
greater productivity dividend in China
Output per worker (Yuan, current prices)
70,000
60,000
50,000
Non-agricultural
workers are five times
more productive than
agricultural workers
40,000
30,000
20,000
10,000
0
1978
Source: EcoWin
1981
1984 1987 1990
Agricultural sector
1993
1996 1999 2002 2005
Non-agricultural sector
2008
Longer term growth outlooks differ by nation
Projected average annual GDP growth 2010 - 2020
China
India
Indonesia
Thailand
Australia
United States
New Zealand
United Kingdom
Germany
France
Japan
Italy
Source: Consensus Economics
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Australia’s growth recovery will continue
Real GDP growth
12%
Year-to growth
9%
6%
3%
0%
-3%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
With China’s boost to our income vital
Nominal and real growth
12%
Nominal national income growth
9%
Real GDP growth
6%
3%
0%
-3%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
World payments drive Australian profits,
and hence company tax revenues
120
110
30%
The terms of trade
Profits as a share of the economy (RH axis)
100
27%
90
80
24%
70
60
50
1986
21%
1991
1996
2001
2006
2011
So ... Chasing the Dragon:
Output per worker in 2009-10
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
Sectoral growth in 2011-12
10%
8%
6%
4%
2%
0%
-2%
Resource curse has hidden costs ...
1. The Great Complacency (“she’ll be right mate”) ...
2. … hurts the quality of policymaking, and leads to
interest groups adopting a Cargo Cult mentality.
3. Volatility of growth rises, real growth stagnates …
4. … while persistent strength in the currency (and
temporary strength in interest rates) undermines
non-resource exporters and those who have to
compete against imports.
Will reform advance in the next few years?
• Past reforms were easier than those we now need to
chase. You can only float the $A or bring in the GST
once. To get the same boost to productivity would
require a massive overhaul of Federal/State relations.
• That is partly why leadership has been lacking – why
further reforms on productivity drivers have recently
proved beyond even the ability of governments with
large majorities. And if we’ve failed to achieve
further reforms while we had governments with big
majorities, how will we go in addressing Australia’s
productivity challenge now that we have a minority
government?
What is right versus what is popular
• There is a key equation in politics – sometimes you
support the popular thing rather than the right thing
because you need to bank some political capital for
the future. And at other times you are willing to
spend some of that political capital to fight for what
you believe is right even when that is not popular.
• But hung parliaments mean increased populism.
Both sides are always on a knife edge – they have to
keep public opinion on their side to vie for power.
• That means they are more regularly likely to go for
what is popular rather than what is right.
We are breaking ‘the migration equation’
2.0
% of Australia's population
Index (2008-09 = 100)
140
1.6
120
1.2
100
0.8
80
0.4
60
Forecast
0.0
1949
40
1959
1969
1979
1989
Migrants as a share of population
1999
2009
Terms of Trade
2019
Especially as retirement accelerates
2.4%
2.2%
2.0%
Working age population growth
1.8%
1.6%
1.4%
1.2%
1.0%
0.8%
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Which will help to pump up interest rates
90 day bank bill rates
8%
6%
4%
2%
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
And consensus sees long run price falls
Zinc
Steaming coal
Lead
Gold
Nickel
Coking coal
Copper
Silver
Iron ore
-60%
-50%
-40%
-30%
-20%
-10%
0%
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