World Trade Organisation warns Australia on mining boom

AN Asia-led resources boom had helped Australia dodge recession but its reliance on mining exports and a rallying currency posed a "major economic challenge", trade officials warned.

The World Trade Organisation (WTO) said a "virtual doubling" in Chinese demand for Australia's raw materials had lifted its terms of trade to 60-year highs, driving a record run of its dollar above parity with the greenback.

Growth had bottomed at just 1.4 per cent during the depths of the global crisis and its prospects were strong, with Australia "still considered one of the most competitive economies in the world".

But "soaring export prices and low unemployment" of 5 per cent appeared to have bred complacency about reform, the WTO said, with a "marked decline in multi-factor productivity growth".

The economy's heavy reliance on mining exports left it dangerously exposed to commodity price fluctuations and its historically high exchange rate threatened to cripple other industries, leading to lopsided growth, the WTO warned.

"The latter is likely to reduce the competitiveness of import-competing activities and non-mining exports, unless productivity in these activities can be improved," the WTO said in its first Australian Trade Policy Review since 2007.

"This will have far-reaching implications for the pattern of growth and structure of the economy by necessitating a reallocation of domestic resources," it added.

"Significant structural adjustment by the non-mining economy will be required."

The WTO said Australia's "reliance on short-term external debt, and the high and growing indebtedness of households" were also downside risks.

Its "growing but ageing population, climate change and technological change" were among Australia's longer-term challenges, the WTO added, urging Canberra to review its trade policies.

April 6^th, 2011

Source: news.com.au