HSBC’s chief economist Paul Bloxham has a note out today explaining his continuing cautious optimism that Australia’s economy will ride out the structural changes it’s currently undergoing with the passing of the mining investment boom and the falling value of the Aussie dollar.
The key point is in this chart, which shows projected rises in export volumes of certain commodities which HSBC believes will continue to make a significant contribution to national income. The note acknowledges it’s contingent, of course, on there being no sharp fall in commodity prices.
Bloxham outlines three stages to the boom: the rise in commodity prices, which lifts incomes, then the subsequent investment period that the first phase encourages. Once that’s finished, there’s an export boom that continues to bouy the economy for ensuing years as a result.
From the note:
Of the three key commodities in Australia’s resources story, iron ore and coal exports have already begun to ramp up, while LNG has yet to pick up strongly. However, the large driver of the forthcoming increase in resources exports is expected to be LNG (Chart 5). After all, around three-quarters of the capacity build in recent years has been to produce LNG. Government estimates based on capacity under construction suggest that exports of LNG will rise by around 400% between 2014 and 2018.
There have been some encouraging signs that housing and other sectors are starting to pick up, and certain exporters will become more competitive with the fall in the dollar. But as this note points out robust commodity prices are a critical plank. Watch that space.
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