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No Dutch disease ahead for Aust economy: RBA
19 Feb, 2012 09:39:40
SYDNEY (Asia Pulse) - The resources boom is unlikely to derail other industries in Australia, according to Reserve Bank of Australia deputy governor, Philip Lowe.
Dr Lowe said Australia would be unlikely to suffer from `Dutch disease', as resource demand from Asia continued.

Dutch disease is a concept used to explain the apparent relationship between the increase in exploitation of natural resources and a decline in the manufacturing sector.

"I think you can make a plausible case that this adjustment we're going through is going to be very long-lasting," he told the Committee for Economic Development of Australia.

"The process of development in Asia is going to take many decades, and Australia has to supply the resource needs to Asia for a number of decades.

"If that is the case, the economy has to go through some structural adjustment, and my sense is that we're not losing the skills that will make us competitive in the medium term."

However, Dr Lowe acknowledged that the strong Australian dollar - a side effect of the boom - had made conditions difficult for some industries.

"The effects of the high exchange rate are evident in the manufacturing, tourism and education sectors, as well as some parts of the agriculture sector and, more recently, in some business services sectors," he said.

"In some cases, this is prompting renewed investment to improve firms' international competitiveness.

"But in other cases, businesses are scaling back their operations in Australia and some are closing down."

Household spending power had been boosted by the strong domestic currency, according to Dr Lowe, with household incomes growing by around 60 per cent in the last decade, while the price paid for many manufactured goods had remained the same.

Dr Lowe was confident that Australia's economic growth would continue to progress well, with gross domestic product (GDP) and inflation expected to grow around trend over the coming years.

As a result, he said, the country was well-placed to deal with any flow-on effects from Europe's sovereign debt crisis.

"We have much more flexibility to deal with unfolding events than almost any other developed economy," he said.

Australian job figures released on Thursday seemed to confirm this, with unemployment falling to an unexpected 5.1 per cent, with an additional 12,000 jobs added to the market.

AAP

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