Multi-speed economy long the case in Australia

The presence of the 'multi-speed' economy has long been the case in Australia, even before the mining boom, according to the Reserve Bank Governor Glenn Stevens, who discussed the optimistic performance of the Australian economy in his Friday speech to the American Chamber of Commerce in Adelaide.

In his speech, Mr Stevens recognised that the mining sector was impacting other sectors by drawing away labour and capital and pushing the exchange rate up, but also said that the slow growth in the non-mining sector would have occurred even without the strong performance of mining.

"Slower growth in sectors that had earlier done well from unusually strong gains in household spending would have been occurring anyway, even if the mining boom had never come along."

"It has been a very long running trend that output and employment in manufacturing has grown more slowly than in the economy as a whole, and that output of various kinds of service provision has grown faster. That has been happening for at least five decades, and in most countries in the developed world."

He adds that the respective GDP contribution of both the mining and manufacturing sector, in particular, are presently about the same as what they were in 1900. He also notes that mining is not the only sector growing - the non-mining sector has expanded by about two per cent over the past year, contributing to Australia's real GDP growth of 4.3 per cent.

Despite the economic growth, much of the public sentiment around the multi-speed economy can be explained by the behaviour of the household sector, according to Mr Stevens.

"Some parts of the economy that depend on household spending are still experiencing relatively weak conditions, compared with what they have been used to. But this isn't because the mining boom spillovers have failed to arrive. It is, instead, the result of other changes that actually have nothing to do with the mining boom per se, but a lot to do with events that occurred largely before the mining boom really began."

Prior to 2007, household wealth rose strongly, driven by rising housing prices, and at the same time the savings rate was on a downward trend. These patterns changed with the global financial crisis in 2007 as savings began to increase as a result of income gains from the initial resources boom. Consumption also began to slow down after reaching its peak in 2008, at a rate of about 1.5 per cent per year.

These patterns have fed into business investment spending, which has increased steadily since the mid-1990s. Mining investment, in particular, had a growth rate of around two per cent in 2005 but the RBA anticipates that this will rise to nine per cent by mid-2014.

"It is these changes in behaviour by households, in asset markets and in credit demand, that I think lie behind much of the disquiet - dissatisfaction even - that so many seem to have been expressing," Mr Stevens said.

"But this would, as I say, have occurred with or without the mining boom. In fact, without the mining boom and its spillovers, we would have been feeling the effects of those adjustments rather more acutely than we do now."

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