Bill Evans gave a speech last night that is well worth a read. In it he discusses the end of the mining boom and the end of the household debt boom leaving him asking some very pointed questions:
My objective in this speech has been to assess the impact of the Mining Boom on the Australian economy. I have identified three separate stages of the Boom. Stage 1 has passed; we are in the middle of Stage 2 which will pass by 2014; and Stage 3 will cover 2014–2016.
The impact on growth of Stage 1 was to supplement the more important household leverage model; with the demise of that model. Stage 2 has allowed growth rates to remain respectable albeit comfortably below the growth pace in Stage 1. Stage 2 is likely to fade by 2013 and Stage 3 will begin. The growth contribution from that stage, which is likely to end in 2016, will be insufficient to cover for the ongoing household deleveraging.
The mining Boom has also left the Australian economy with a “high” AUD. This is likely to represent a major headwind as we seek alternative sources of growth as the contribution from the mining boom fades.
Productivity gains are really the only solution – infrastructure and labour and product market reform. To assume that “something will turn up” to fill the growth gap created by the drivers of leverage and mining would be a dangerous option.
Worth your time.
He has also just brought forward his rate cut call to October.
