Offshore Capitalist

With resources in the driver’s seat, it could be a bumpy ride

The Australian: THERE comes a point in every resources boom when the sector moves into the driver’s seat of the national economy.

In this most recent upswing, that happened this week as the resurgent resources sector was blamed in part for the Reserve Bank’s interest rate rise, credited with a spate of mining takeovers and cited in the debate on population and immigration.

Commodity prices even colour our geopolitical relations. The Stern Hu affair was, after all, about iron ore prices.

When the resources sector really gets going it reaches into every corner of the economy beyond its remote locations in the Pilbara or on the North West Shelf, with its insatiable demand for infrastructure, labour and capital. It delivers generous payola to workers, suppliers and government, and creates an even bigger economic multiplier.

Rio Tinto chief economist Vivek Tulpule predicted this week that global metals demand would double in the next 15-20 years.

Westpac meanwhile, predicts increases in commodity prices of about 20 per cent in both this calendar year and next. Gains of this order are likely to be revealed in next month’s budget, along with a resources-driven turnaround in the budget’s bottom line.

But Australia’s increasingly resource-focused economy could be in for an even bumpier ride involving greater highs and even deeper lows, says Brian Fisher, former chief of the Australian Bureau of Agricultural and Resource Economics, who now runs BAEconomics.

Mr Fisher predicts more of what Australia has seen over the past five years: a steep surge in commodity demand and prices, followed by greater volatility and economic instability.

“I think we are headed for a world where there will be much more volatility, periods of high prices and periods of low prices,” he says.

“There could be strong surges of growth, followed by macroeconomic instability in the developed world that cascades back on to the developed world, with big swings in prices.”

via With resources in the driver’s seat, it could be a bumpy ride | The Australian.

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