Australian is in it's biggest mining boom since federation but the rise in income should be treated as being temporary, the central bank governor says.
In a speech on the resources boom in Melbourne, Reserve Bank of Australia governor the current mining boom is being driven by a big increase in demand for commodities, by China and India.
He said global consumption of coal has increased by about 50 per cent over the past decade, consumption of iron ore has increased in 80 per cent since 2003 and the capacity to export Liquified Natural Gas （LNG） has double since 2004.
Mr Stevens said increased demand for these commodities has driven up prices and Australia's terms of trade are about 65 per cent above the average level for the 20 century.
"This helps to offset the expansionary effect of the increase in investment, and also gives price signals to the production sector for labour and capital to shift to the areas of higher return," he said.
"In other words, firms in the traded sector outside of resources are facing a period of adjustment. But in the face of such a shock they were always going to face that adjustment, one way or another."
Mr Stevens emphasised the boom was probably temporary and said a good deal of current national income should flow into savings and not increased spending in the near term.
"To date, that precautionary approach seems to be in place," he said.
"Households are saving more than for some years and the much-discussed consumer caution has been in evidence. Firms are consolidating balance sheets. Governments have reiterated commitments to stated medium-term fiscal goals.
"We can always consume some of that income later if income stays high, but it is harder to cut back absorption that rises in anticipation of income gains that do not materialise," he said.
（Business News）
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