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Forward Thinking Magazine : August 2011
"Global economy The IMF expects the global economy to grow by around 4.5 per cent in both 2011 and 2012. Emerging and developing economies will continue to drive the global recovery, with the IMF expecting developing Asia, which includes economies such as China and India, to record growth of around 8.5 per cent in both 2011 and 2012. The uncertain aspect is that the global recovery remains exposed to a number of significant risks. These risks include the build-up of inflationary pressures in emerging economies, the threat of a further sustained rise in oil prices, and uncertainty over the direction of medium term fiscal consolidation in advanced economies such as the US. And of course, the biggest risk to the current global outlook, the sovereign debt crisis in the euro area, particularly in Greece, continues to pose the risk of contagion to global financial markets. The transmission mechanism to the Australian economy of the events in Greece is a qualitative, rather than a quantitative one. These events affect investor and market confidence, as your own market analysis will tell you. Domestic economy Nevertheless, Australia's economic fundamentals are strong. Our GDP has been growing steadily. It's notable that, today, Australia's GDP is significantly higher than it was before the onset of the global financial crisis. Even as other advanced economies struggle to make up lost ground, Australia has been steadily moving forward. Our unemployment rate is holding steady at under five per cent. Since the Labor Government was elected in 2007, we have created over 700,000 jobs --- an outstanding result among Western economies. And the most recent National Accounts figures show that our terms of trade rose 5.8 percent over the March quarter to be over 22 percent higher over the year. In 2010-11, the terms of trade are expected to reach their highest sustained levels in 140 years. But to continue making headway, we must be open to change and innovation. I believe we can't afford to take our current good fortune for granted. I believe that the rest of the world does not owe us a living. Our Australia, a relatively small nation fortuitously located on the edge of Asia, is blessed with natural resources, a stable and effective system of government -- including good health and education -- and a large capital market. We have challenges and we have competitive advantages. The biggest fault however would to be complacent about either. We need to be clear-sighted about the forces currently at play on our economy, and have an optimistic sense of what our economy will look like in 20 or 30 years. Australians should not fear our future. Our economy is in transition, and the forces acting on it are complex. The re-emergence of Asia, an ageing population, a services economy, the power of information (and therefore education), a sustainable society and economy; these are all forces which will consistently govern public and private economic activities over the next decades. I'd like to dwell on the first two of these forces, as I think they are particularly relevant to the financial advice industry -- the re-emergence of Asia and ageing of the population. An economy in transition: re-emergence of Asia The re-emergence of Asia has seen the centre of economic gravity shift to this part of the globe. It is important to say re-emergence, because in 1850 what is now modern Asia was the world's largest economic region. Our recent history with this re-emerging part of the world has been enthusiastic, no doubt. But I believe the time is upon us to deepen not just our economic links with Asia but more and more of our cultural and social links too. In 1990, Japan and Korea were already among Australia's top five export markets. Today, with the rapid rise of China and India, four of our five largest export markets are in Asia. Asian countries constitute seven out of our top 10 trading partners. The continued rapid growth of emerging economies will continue to shape our trade and economic environment. For example, according to Tourism Australia, in 2010 the China inbound market contributed over $3.2 billion to the Australian economy. By 2020, this market has the potential to contribute $7 billion to $9 billion annually. Building financial services is crucial, as the opportunities will only keep growing to manage the new Asia-based wealth -- both private and institutional. Education, including professional development, is another crucial area for investment and ongoing export focus. For an organisation such as the AFA, the question is not just about guiding the professional development of the next generation of advisers in Australia, it's about training the next generation of financial advisers in the region. In India alone, there are 750 million people under 35 that need to be trained. Imagine an AFA professional development school in Mumbai or Singapore? An economy in transition: ageing population While the gift of longer life is something to celebrate, longer life brings new challenges. As highlighted in the Government's Intergenerational Report 2010, the number of Australians over 65 years old is projected to grow from three million in 2010, to 8.1 million by 2050. During the same period, the ratio of working- age Australians to those aged over 65 will decrease from 50 to 10 to just 27 to 10. Inevitably, these changing demographics will have consequences for economic growth and government finances. We can expect an increased demand for age-related payments and higher quality healthcare services. At present we spend about 9 per cent of GDP on health, the United States spends upwards of 16 per cent -- so we're not doing too badly. But increased health demands spike as you go past 80 years of age -- so we know health costs are a big part of an Australian population growing older. On the upside, an ageing population will also provide opportunities for new industries to develop to meet the needs of mature consumers. And the opportunities to retain older workers in the workplace." Economic Update from Bill Shorten On 27th June 2011, Bill Shorten, Assistant Treasurer and Minister for Financial Ser vices and Superannuation, addressed the Association of Financial Advisers. The following is an excerpt from this speech.