The world's economy is moving east from the US in the 1980s and will reach China and India by 2050, according to HSBC chief economist, Paul Bloxham.
He was speaking at a Westcon Group Imagine 2011 conference session in Sydney, entitled The State of the Economy.
Bloxham said China's economy growing at 10 per cent per annum and essentially, becoming twice the size it was since 2007 and India's growing population are factors for the economy to move in that direction. Inversely, he said that the economy in the US and Europe are growing at a very small pace for the past four years.
He added that world growth is now being dominated by what's going on in emerging economies as the developed economies slow down.
“This is expected to continue in the next few years. It is important for Australia because Asia needs a lot more commodities to develop and Australia's export prices relative to import prices, are at very high levels,” Bloxham said.
He stated that within Australia, the manufacturing and tourism sectors are a few of the most affected by the high Australian dollar. Retail sales too, are taking a plunge although household consumption is stronger, he said.
“Retail sales are at a third of what we have been normally spending. We spend money online and increasingly, offshore as the Australian dollar increases in value,” Bloxham stated.
Bloxham said that other factors have also arisen due to the strong Australian dollar. They include:
- The strength of the dollar is also putting pressure on housing prices, causing house prices to decline in the past 18 months.
- Divergence in job growth in the various industries, especially in the manufacturing and retail space.
According to him, the strong Aussie dollar is not the only reason behind slow employment growth. He suggested that the decrease in population, due to smaller number of immigrants allowed to enter the country, is another factor that should be considered.
However, he mentioned that although the population drop has caused low productivity growth, it has not reached recession levels.
Bloxham also said that wages have grown ahead of productivity, driving up labour costs. But the high exchange rate has kept inflation in control.
“Australia is still in pretty good shape overall in part because the labour market is still relatively tight and the unemployment rate stands at 5.2 per cent and we have a large amount of mining investment that is yet to come,” he concluded.