LAUNCESTON, Australia – (Reuters) – The resource boom is often cast as both villain and hero in Australia, being simultaneously recognized as a major driver of the country’s wealth but also as a destroyer of traditional industries.
Two recent research papers have highlighted this dual nature of investment boom in iron ore, coal and liquefied natural gas (LNG), and taken together show that while Australia has benefited hugely from China-led demand for commodities, the risks seem to be mounting.
First, the good news. Australia has largely avoided the dreaded “Dutch Disease” over the past decade, according to an Aug. 22 research report from the Reserve Bank of Australia.
“Dutch Disease” was coined by The Economist magazine to describe the negative impact of a booming resource sector on other parts of the economy, using the discovery of natural gas off the Netherlands and the subsequent decline of that nation’s manufacturing as the eponymous example.
Over the decade to 2013, the resource boom boosted real per capita household disposable income by 13 percent, raised real wages by 6 percent and lowered the unemployment rate by 1-1/4 percentage points, the Reserve Bank researchers said.
While this was the good news from the investment of hundreds of billions of dollars in boosting commodity output, the central bank also found that the appreciation of the Australian dollar weighed on industries exposed to trade, such as manufacturing and agriculture.
“Manufacturing output in 2013 was about 5 percent below what it would have been without the boom,” the report said, concluding that the de-industrialisation that sometimes accompanies the development of resources has not been strong.
The Reserve Bank’s views present a counterpoint to often repeated claims by Australian politicians and media that the country has “wasted” the resource boom.
These claims often are rooted in political ideology and most often allege that either the proceeds of the boom have been wasted by politicians on feel-good welfare, or alternatively that the government hasn’t collected enough revenue and multi-national resource companies have ripped off the populace.
NEW PHASE, NEW CHALLENGES
If the Reserve Bank shows that Australia has navigated the investment phase of the resource boom fairly well, consultants Energy Quest show the scale of the challenges ahead.
The investment surge that kept Australia’s economy humming along through the 2008 global recession is “fading fast and there are few signs of new projects on the horizon,” Energy Quest said in a research report on Thursday.
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