Economy 'headed for boom'

AUSTRALIA'S economy will be strong and is on the upswing for a boom within the next decade, as long as mining remains strong, a leading economist says.

BIS Shrapnel chief economist Frank Gelber, speaking in Brisbane on Tuesday, said the boom would come as a result of the country's strong exports to the thriving continent of Asia, a strong mining sector and fiscal stimulus during the global financial crisis.

"All of the pre-conditions that led to the GFC are gone," Dr Gelber said.

"The mining drivers are here for another five years at least.

"The boom won't mature in 18 months, it will take six or seven years, or eight or nine."

Dr Gelber did question whether the mining boom will last past its current projects, which are locked in for the next five years.

Falling commodity prices and a downturn in construction would cause a real "problem".

"I'm not sure how long commodity prices stay this high," Dr Gelber told AAP after his speech.

"(During) the second five years, there is a question mark about whether the minerals boom is sustained.

"A bust would create havoc in the economy and we'd have a recession."

Despite the rebound in the economy, debt and equity markets were gun shy, which was keeping a lid on the upswing creating a "pressure cooker" effect for a boom, he said.

"Now is the time where I would go aggressively equity and away from fixed interest because the risk is gone," Dr Gelber said.

On the other hand, the US, UK and some European markets would take more than a decade to recover, Dr Gelber predicted.

He added that those market were not having a double dip recession because they didn't recover fully from the original downturn.

Australia's situation was totally different with the country emerging from a relatively mild downturn.

Specifically, he said Queensland had recovered well, as it was the first state hit the hardest by the GFC.

"There was a time where year-on-year Queensland went negative, but they are strongly positive again," he said.

Dr Gelber said the stimulus was largely responsible for staving off the impact of the GFC.

"We would have had a recession had it not been for very strong household handouts and government investment," he said.

Another saviour of the Australian economy was Asia, which took nearly 80 per cent of the country's exports, he said.

"The strength of Asia is been an incredible windfall for us," he said.

The unemployment rate will also drop below five per cent by mid 2011, which will mean the country will run into labour and capacity constraints two years from now.

"Then we'll see the re-emergence of demand inflationary pressure and the Reserve Bank freaking out because inflation's going up," he said.

"And they'll fight it with rising interest rates and will cut the housing boom in the bud before we have a chance to supply our under supplied markets."