Part 2

Until recently, both these nations were low-cost exporters, providing cheap manufactures to the West. In reality, their main export was low inflation as our clothing and electronic goods became ever cheaper.Now they are becoming self-sufficient economies - similar to the US. Their own economies are fuelling their growth and they are becoming less reliant on exports.Tom Albanese, the head of the mining giant Rio Tinto, doesn't exactly see eye to eye with BHP Billiton's chief executive Marius Kloppers on much.But the one thing they do agree on is China. Both see continued strong economic growth for years, and even stronger growth in the appetite for metals.Metals are one thing. The real change being wrought on us is in energy. And it is energy - or rather the cost of energy - that will determine our future.It was energy that started the Industrial Revolution 200 years ago - when we first started burning hydrocarbons in the form of coal. And it was energy, in the form of oil, that sparked the transport revolution a century ago.
You'd have to be blind not to notice what is going on now. It's all over the news, it hits you in the hip pocket every time you pull in at the petrol pump.Pfff, we've had oil price spikes before, I hear you say. But the oil price shocks of the 1970s were caused by an artificial restriction of supply. This time around, the spike is being driven by demand. And if you ask any seasoned oil explorer, even they now talk about peak oil being just a few years off.Peak oil is the point where we are on the downhill run in known supplies. There is still oil out there. But it is in ever deeper water, in more politically unstable areas or in tar sands where the cost of extraction has been so high it has been uneconomic. Some of it will be developed, which will stabilise prices and perhaps even push prices temporarily lower. But supplies are finite and demand is soaring.Think about our energy use in the West. Take an average Australian of a century ago and compare him or her with us in terms of our energy consumption. We've got electricity on tap, 24 hours a day. We ride around in fast fuel-guzzling cars. We leave home and land in Los Angeles in 16 hours.Until recently, several billion Chinese lived as we did a century ago. Imagine their energy demands rising to our levels and you'll quickly figure oil prices aren't going to return to the levels of a year ago.Add to that the damage we are doing to the environment in the form of greenhouse gas emissions and the extra costs of pricing that damage through carbon trading.So is this the ultimate disaster scenario?Not necessarily, according to a recent issue of The Economist. Higher oil prices make alternative energy sources more viable - biofuels, solar and wind power. And if money and expertise are invested in those areas, they will become more efficient, more economic and maybe, just maybe, lead to a bright future. But prepare for a lot of pain along the way. John Edwards

Part 1 2008 a critical year for Australia

The stormclouds are gathering. Our market has plunged below 5000 for the first time in two years, oil prices are soaring, America is in (unofficial) recession and the Reserve Bank is clearly worried about the home front.After years of partying, many believe it's time for the inevitable hangover when gloom and doom replace the exuberant optimism that just a few months ago seemed as though it would never end.But how much of this is just another cyclical downturn and how much of it is related to a more permanent shift?I'm going to go out on a limb here with a couple of bold predictions. I think we are at a pivotal point in history; that we are witnessing the early stages of a massive shift in the global economy, in the balance of power and in the way we live.Australia has become a barometer for these far-reaching changes. We are being pulled in opposite directions as we send vast quantities of resources off to China while a virus that started on Wall Street and spread across the US and Europe has infected our financial system.In years to come, it's quite probable we will look back at 2008 as the year in which everything changed. And most of the changes being wrought upon us relate to energy, our use of it and its cost.There are several powerful forces at work at the moment; some cyclical and some far more fundamental.Let's look at the cyclical ones first. The worst credit squeeze in history is under way. Give it follows the biggest debt binge the world has ever seen, it's not surprising. On top of that we have a recession under way in the US. On their own, those events are not particularly worrying. Markets and economies go up. And then they go down. What is worrying, however, is that in the early stages of a recession, Wall Street's biggest financial institutions already have been forced to go cap in hand to the Middle East and Asia for emergency funding.And that's where we come to the more fundamental and permanent changes at work on the global economy.What is happening in China and, to a lesser extent, India is akin to what occurred in North America in the 19th century. Back then, the balance of economic power shifted from the Old World to the New World. It's happening again now.There are differences - vast differences - in this new shift. Unlike the rise of North America, China and India already have vast populations. And as these populations move rapidly from Third World to First World, they will demand more resources, to live the lifestyle we enjoy. TBC

story by Ian Verrender from the business section of the Age "The Year everything changed"

Not good news with property values falling across Australia

Plummeting property values have prompted warnings Australia is heading for a one in a 100 year slump. New figures from property analyst Residex showed house and unit prices in nearly every city and rural centre fell in June, News Ltd reports. The last time all states fell at the same time was just before the Great Depression. The slump is affecting the top end of the market as well as the lower end.Residex chief executive John Edwards has warned of tough times ahead.
"It looks like we're moving into a one-in-100-year event," Mr Edwards is quoted as saying.
"It points to a situation where unless the government and Reserve Bank take action Australia could move into a recession."The only other times this has ever occurred are before we have moved into severe recessions."The Residex statistics come at the end of a gloomy week for the Australian economy.Official figures released last week showed housing construction fell for a fourth consecutive month and demand for loans declined by a quarter in the four months to the end of May.Higher petrol prices and interest rates, and the share market slump also saw consumer confidence drop 51 per cent to its lowest level since 1992, when the economy was recovering from recession. Mr Edwards said housing markets in different states usually rose and fell at different times.
"To see an adjustment going on a wholesale basis across the whole of the nation is incredibly unusual," he said."Never in my lifetime have I seen so many converging negative events." Residex reports the current median house value in Sydney is $573,000, down 1.05 per cent in June compared with 1.81 per cent for the three months to the end of June.The falls are happening all over Sydney. While property values in Sydney's battler suburbs in the west and southwest have been dropping for some time, homeowners in well-off areas are now being hit.Among the 20 worst-performing suburbs for houses are the wealthy northern enclaves of Whale Beach, Clontarf, Palm Beach, Elanora Heights, Clareville and Mona Vale.
While Plumpton, near Mount Druitt, was the worst-performing suburb, with negative capital growth of 5.74 per cent in the three months to June and 1.96 per cent in June, Whale Beach came in as the third-worst performer, with negative growth of 3.73 per cent and 1.14 per cent, respectively.Maria Cassarino, from Richardson and Wrench Seaforth, which covers the Clontarf area, reported fewer people had attended open houses in recent months."This time last year we were getting 30 people though a property and now we are getting five," she said.While Seaforth usually had low turnover, Ms Cassarino said the types of properties that had sold after four to six weeks were taking much longer.John Gavagna, principal of Residential Real Estate at Mona Vale, said there had been a slowdown in sales of properties over $1 million, as buyers were more cautious.RP Data's director of property research Tim Lawless said what happened in the coming months would depend on inflation.He showed some optimism, although he said values would probably fall further in Sydney this year."Coming into 2009, it's likely - and it depends on what happens with interest rates - we will start to see some value improvements return to the market, albeit relatively small," he said.It's the same story for units, with Casula the worst-performing suburb with negative growth of 1.8 per cent in the three months to June, and 0.55 per cent in June.Suburbs such as Milsons Point, Double Bay and Greenwich are also among the poor performers.And Sydney rents rose 15.29 per cent in the year to June, the biggest jump in the country. The average Sydney rent is $490 a week, a jump of $65 from last year. Article from Ninemsn

Looks like we're in a mortgage recession Australia!

Sales of mortgages continue to fall, prompting Australia's biggest mortgage broker to declare the nation is in a "mortgage recession".Australian Finance Group (AFG) says a count of mortgages brokered by its nationwide network fell sharply in June.The AFG Mortgage Index dropped 9.2 per cent to 5,939 mortgages in the month from in May, the company said.Over the year ended June sales fell 22 per cent, building on a 31.5 per cent fall in the May year.AFG, which has 10 per cent of the broking market, said its data showed that mortgages sales nationally had now had two successive quarters of negative growth.This suggested the market was in "mortgage recession", after sales fell from 23,143 at the end of the December quarter, to 20,543 in the March quarter and to 19,755 in the June quarter."We are calling it a mortgage recession," AFG general manager of sales and operations Mark Hewitt said."Interest rates are higher and the cost of money has risen because of the sub-prime crisis in the US, which has spread to the rest of the world."It means borrowers are really sitting on their hands and holding back in terms of major purchases like buying a home," Mr Hewitt told AAP.The 5,939 mortgages AFG sold in June totalled $2 billion, down from $2.6 billion a year ago.The Reserve Bank of Australia (RBA) has raised interest rates four times since August last year and the official rate now stands at 7.25 per cent, its highest in 12 years. At the same time, the commercial banks have raised their rates independently of the central bank, to offset their higher funding costs.Mr Hewitt said, with the RBA less likely to raise rates again this year, he was hopeful that the decline in mortgage sales had bottomed out."We're hopeful it has bottomed out or very close to bottoming out," he said."We're not forecasting anything but very modest growth over the next 12 months."The AFG data showed also that the average mortgage size increased by 7.5 per cent to $341,000 in June, from $317,000 a year ago.The biggest mortgage increases were in South Australia, which was up 13.5 per cent, and Queensland, up 11.7 per cent.New South Wales followed with mortgage size growth of 7.6 per cent, then Victoria with 6.1 per cent and South Australia with 2.6 per cent. Growth was steady in Western Australia.Mr Hewitt said the overall rise in the average mortgage size reflected bigger loans at the well-heeled end of the mortgage market."The upper end of the market is proving the most resilient - that is, buyers with significant equity in their homes and investment properties," he said."Many people who would normally be taking out smaller or medium size mortgages just can't afford to."AFG's figures showed also fewer people were taking out fixed rate loans, indicating most borrowers thought interest rates are likely to remain steady or fall.The proportion taking fixed loans fell to 11.5 per cent in June, from 13.7 per cent May.Demand for standard variable loans rose to 40.8 per cent, from 39.9 per cent.