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Blythe seeks to calm doomsayers

COMMONWEALTH Bank chief economist Michael Blythe is the latest soothsayer to lay down his vision for the Australian economy and resources sector, with his message one of optimism rather than doom and gloom.

James McGrath
Blythe seeks to calm doomsayers

Speaking at the opening of the Northern Territory Resources Week event, he told attendees that he remained optimistic about the Australian economy, despite the doom and gloom associated with falling commodity prices in recent times.

“I think if you listen to some of the senior policy advisers to Canberra … the common refrain from them is that Australians seem to be looking to Greece rather than their own backyard,” he said.

He said the gloom around the Australian economy had been driven by recent headlines about the price crash of iron ore and the cancellation of select projects around the country, the most notable being the expansion of Olympic Dam.

However, perhaps deflating the sense of optimism, he said for Australia to remain on trend growth of 3% over the next few years, commodity prices would have to not crash, China would have to remain the engine-room of the world economy, Europe would have to avoid falling off a cliff and the US would have to avoid a similar fate.

While he and a slew of other economists are not so bold as to predict a definite answer to those questions, he did say Australia’s good fundamentals gave him optimism among the unanswered questions.

Blythe said one of the more difficult questions to answer was whether the resources boom had ended.

“The problem I have when people ask me that particular question is really getting to grips about what the question means,” he said.

“There are two key parts to that story – there’s the pricing side and the mining and construction side.”

He said commodity prices peaked in September last year, at almost 150-year highs, so some pullback on prices was entirely expected.

“There was a sneaking suspicion that the commodity price boom was too good to last and that has indeed been proven to be the case.”

People may say the next few years will see a typical bust cycle to balance out the boom and Blythe isn’t convinced the downside will be as pronounced as the upside.

“The thing about the boom is that it was built up over a longer timeframe, so the idea that you’ll get a full reversal to a point at where it started … you’d need an extremely negative global story for that to happen,” Blythe said.

He said a readjustment in commodity prices would be balanced out by a flurry of activity in the construction sector which in turn was being driven by the number of committed projects.

Blythe said he expected construction to peak in a couple of years but the timeframe could be pushed out further if projects which had not yet reached final investment decision did so.

Also adding to the softer landing for commodity prices than a typical boom/bust was our great trading partner to the north.

Blythe said while there was a well-reported slowdown underway in China, there was no way the ruling party would allow the situation to continue.

“What a slowdown in China has done has encouraged them to take policymakers to take their foot off the brake and apply it to the accelerator,” he said.

“So of course that has some positive implications for the commodity price story.”

However, he warned it might not be possible to get an accurate read on the state of China until the end of this year and into the next when key economic data would be released.

With any news affecting the resources sector heavily impacting on the Northern Territory, newly elected chief minister Terry Mills told attendees that his Country-Liberal party would “get out of the way”

“We acknowledge that the resources sector is going through a new phase right now,” he said.

“The best thing a government can do for business is to get out of the way and allow business to grow and develop.

“Red tape and unnecessary restrictions on business have held the territory back and we are actively seeking ways to reduce this burden.”

However, he did flag a review into local content, telling attendees that he had listened to a number of concerns over his short tenure from NT businesses keen to ensure work that could be done in the territory would be done in the NT.

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