Sunday, December 30, 2012

Australia's "Dutch Disease" in three graphics

As I blogged earlier, in recent years, on the back of the surging demand for ores and minerals, the Australian economy has been showing signatures of resource mis-allocation, popularly described as the "Dutch Disease".

The boom in commodity prices has resulted in the Australian dollar surging against the US dollar.

The country's terms of trade, the price of its exports relative to imports, have risen sharply. This has made its tradeable sector more attractive, since it fetches more domestic currency for the same volume of exports.

The strong exchange rate has boosted the commodities mining sector, but at the cost of non-mining tradeable sectors like tourism and manufacturing. Mining, though just 10% of the economy, is estimated to suck up nearly 70% of total capital expenditure across the economy. These trends are starkly reflected in the respective contributions of each to the national economic growth.

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