AIG ECONOMY 2007- GLOBAL REALITIES FOR AUSTRALIA CHINA, MANUFACTURING AND THE RESOURCES BOOM

Thank you for inviting me to talk with you today about global realities for Australia. While I will be discussing global developments and, in particular, China’s role in these developments, I will also discuss some of the new realities of the Australian economy. Part 1: China, the World and Manufactures Over the past three years, the world economy has experienced a period of robust above-trend growth. Based on the data we have so far, world GDP is estimated to have grown by around 5 per cent in 2006, the strongest growth in 33 years. A defining feature of the recent strong world growth has been the contribution from developing countries. Over 70 per cent of world growth over the past three years has come from developing countries, despite them comprising only 47 per cent of world production. China alone has contributed nearly one-third of world growth over the past three years. China’s GDP growth is expected to remain strong at around 10 per cent in 2007 reflecting ongoing strong growth in investment. Investment is being underpinned by high rates of national saving, widespread urbanisation (generating strong demand for new infrastructure), the availability of a large pool of low-cost labour, and strong profit growth