So we would expect that zero GDP growth in a year would see unemployment rising by about 2 percent. In the first half of this year unemployment rose by 0.9%, and GDP growth will probably be around zero to 0.5%. To stop unemployment from rising well above 6% and much closer to 7% by year end is going to require a strong pick up in the economy. That’s not impossible, but is far from a sure bet. The other interesting factor in the data is the continuing strength of the part-time labour market.¬[sgl dagger] Since January full time jobs have fallen by 117,000, while part time jobs are up by 109,000. The 107,000 person increase in the unemployment rate is due to labour force growth (with the participation rate basically stable).¬

In 2004 China consumed 20% of the world’s aluminium, 32% of iron ore, 28% of steel, 22% of copper and 31% of the world’s thermal coal. All of these shares are above China’s global population share. In other words China is already consuming more than “its share” of global natural resources output. Why? Because China is industrialising and urbanising, both of which are resource intensive. Construction and infrastructure creates the demand for more than 60% of China’s steel, and therefore iron ore demand for example. There is no doubt that China will continue to urbanise for another 20 years or so, but at that point China won’t need to grow it’s infrastructure as quickly as today, and the speed of urbanisation will have slowed down. India is about 15 years behind China in terms of resource demand, so it’s quite likely that there will be very strong demand for natural resources for¬about another 30 years originating from those two countries.¬At about¬that point China’s population starts to decline, and resource demands due to urbanisation and infrastructure needs should slow significantly.¬ With China probably at about the peak of its construction and infrastructure phase currently its share of global resource demand is likely to slowly shrink in coming years, and my guess is that India will slowly grow its share over the next ten to twenty years to make up for some of that shortfall.

Another 20 years or so¬[sgl dagger]is of course a long time for strong natural resource demand, but it isn’t forever, and China’s natural resource demands are likely to slow well before then, so what happens in India is a very important unknown element in the story. It’s also the case that China and India will likely be a lot more efficient than the US or Australia in terms of resource efficiency – if prices stay strong recycling becomes more attractive, subways become more attractive than autos and so on. In 2050 China and India will be around 35% of the global population. The big wildcard is Africa, which at that point will have more than 20% of global population – will Africa industrialise and continue to drive natural resource demand beyond 2030. That’s possible, but Africa is also rich in its own natural resources, so that wouldn’t neccessarily create global tensions with regard to natural resource demand.

The twentieth century trend was for a very slow decline in commodity prices. Twentieth century urbanisation and economic growth did not lead to growth in demand for food and commodities above that which markets could supply.¬[sgl dagger] The main explanation is technological change – in agriculture leading to more efficiency and in mining leading to lower cost and more discovery. What is different now is that China and India are rising very quickly, and their populations are a very large share of global population so that commodities demand is growing too quickly for technological change to hold down prices. But that won’t happen forever.

Putting all of that together it would be reasonable to expect strong demand for natural resources in the next twenty years or so, and some conflicts around that, but I’d expect to see that confict to slowly dissipate in future years. And even within that twenty years its not clear that we will continue to see demand growing stronger than natural resource markets capacity to supply. The bad news for Australia is that the long downward trend in commodity prices might not yet be dead, though we’ve probably got a while yet to enjoy the mining boom. Natural resource conflict might be one issue facing Australia in coming years, but I’m guessing that there will be plenty of other equally interesting challenges.