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Asian boom will support our long-term picture

August 16, 2010

http://www.theaustralian.com.au/business/asian-boom-will-support-our-long-term-picture/story-e6frg8zx-1225905071813

Australia has a dominant export: commodities.  And this places the country in a powerful position for strong economic growth in the years ahead.  The Asian Development Bank forecasts 7.9 per cent growth for developing Asia in 2010 and the Asian countries will continue to have strong demand for the commodities that Australia produces.

Much attention continues to be paid to the strong growth in China.  But “even if China should choke economically, a most unlikely event, then India will be there, and Indonesia as well, each growing by 7 per cent or so a year.”

Why is Asian growth so strong?  Put simply these countries are growing in population and maturing in terms of economic development and these phenomena require consumption of lots of raw materials, especially steel which is a basic component in all sorts of private and public infrastructure. “World Bank economist Shane Streifel says that the growth in demand from China and India ‘presents a large challenge to the metals industry, to almost double output over the next two decades’.”

These conditions will drive up prices “for iron ore and coking coal, the core components of steel” and Australia, one of the closest sources of Asian supply for these and other mineral resources, will likely benefit the most from this trend, as opposed to other more distant sources of supply such as Africa and Latin America.

However, there is one key challenge.  “The chief variables that could still let this great opportunity for sustained prosperity slip from Australia’s grasp are investment, ensuring that demand is reliably met, and infrastructure, enabling the commodities to make their way efficiently to their markets.”

  1. What factors does the article identify as important to the future growth of Australian GDP?
  2. What are the differences and similarities between the factors driving Australian economic development and those affecting developing world economies?
  3. What role does Australian government policy play in ensuring macroeconomic progress?
  4. If the economic picture for Australia, as portrayed in the article, comes to pass, how might Australian inflation be affected?
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