More news today that suggests while the Australian economy is in the midst of a big adjustment from mining investment to the RBA’s Holy Grail of “more balanced growth” the adjustment is being made.
Businesses invest because they expect to make back that investment and then their required return on capital over the life of the investment. It’s Corporate Finance 101.
So all the mining investment being made in Queensland, WA and the North West Shelf is expected to turn into exports and as a result, income for Australia.
Goldman Sachs said:
The composition shift of Australia’s export mix towards resource exports is forecast to continue. Already at a multi-decade high (c.55% of total exports; Exhibit 15), we expect accelerating resource exports to account for c.80% of the increase in total export volumes over the forecast period (to CY17; Exhibit 16).
It’s the argument Michael Blythe made yesterday when he suggested that Australia might be on the road from a current account deficit nation to a current account surplus nation.
It’s good news for our long term economic future, even if the transition feels difficult.
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