Asia middle class boom changing world economy: RBA
16/06/2011 - Asia's booming middle class is "fundamentally changing the face of the world economy," Australia's central bank chief said on Wednesday, sending the local dollar soaring with hints of a rate hike.
Reserve Bank of Australia governor Glenn Stevens said the rapid growth of China, India and other emerging economies was driving Australia's terms of trade to levels about 85 per cent above their 20th-century average.
"The amount of additional income accruing to production in Australia from that is 15 per cent or more of annual GDP," the bank chief said in a speech.
Stevens said the boost reflected a "large and persistent change in global relative prices", warning that the "China story" went beyond cyclical forces of supply and demand to a deeper structural shift.
"Hundreds of millions of people in the emerging world have seen growth in their incomes and associated changes in their living standards, and they want to live much more like we have been living for decades," he said.
"This means they are moving towards a more energy- and steel-intensive way of life and a more protein-rich diet. That fact is fundamentally changing the shape of the world economy."
In Australia, that meant a "very large boost to national income" which would require "some degree of restraint", he said, raising the prospect of a rate hike - the first since November when it was lifted to 4.75 pe recent.
The Australian dollar spiked to $US1.0707 from $US1.0671 prior to Stevens' remarks.
The Reserve Bank of Australia held official rates steady this month for the sixth time since November, saying floods and cyclones over the summer had thrown the economy into reverse, while Europe remained under a debt cloud.
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