'Two speed' economy emerging

SYDNEY: Australia's resources hiring boom underscores central bank Governor Glenn Stevens's concern that the emergence of a "two-speed" economy may force policy makers to impose interest-rate gains that hurt slower-growing regions.

Unemployment fell last month in Western Australia and Queensland, states rich in iron ore, coal and natural gas, while the jobless rate in New South Wales, the most populous state, climbed to 6.1 per cent from 5.5 per cent, a bureau of statistics report showed.

Resources companies led by Chevron, which agreed in September to proceed with the A$43 billion ($54 billion) Gorgon gas venture off northwestern Australia, are hiring workers and stoking an economic rebound that may force the central bank to raise borrowing costs for a record third month. Stevens said two weeks ago a resources boom will trigger "adjustment challenges" with "industrial and geographical implications".

"It's a tough position for the Reserve Bank," said Savanth Sebastian, an economist at Commonwealth Bank of Australia in Sydney. "They are well aware that when you raise rates, you'll be hurting eastern seaboard states to a greater degree because they don't have the resources story.

"The Chinese economy is accelerating and that means a lot for states like Western Australia and Queensland that are leveraged off coal, iron ore and gas," Sebastian added. "Those states over the next decade will be the focus of job creation."

Stevens and his board are forecast to raise the benchmark interest rate on December 1 by a quarter point to 3.75 per cent, adding to similar moves in October and this month. It would be the first time the bank has tightened at three successive meetings.

The Reserve Bank of Australia became the first in the world to raise borrowing costs twice this year, citing a rebound in consumer confidence, an 8.4 per cent jump in housing prices in the six months through September, and resurgent demand from China and India for natural resources.

At the height of the last mining boom, economic growth in Western Australia rivalled China, its biggest export market, peaking at 14.8 per cent in the second quarter of 2006.

Growth in the same period in Victoria, host to manufacturers such as General Motors' Holden unit, Toyota's local unit and underwear maker Pacific Brands, was 1.5 per cent.

In New South Wales, home to Boral, the nation's largest seller of building materials, the economy grew 0.6 per cent.

Rio Tinto Group, the world's third-largest mining company, last month announced it will double capital expenditure in 2010 amid a rebound in prices for commodities.

Construction on the Gorgon gas venture, jointly owned by Chevron, Exxon Mobil and Royal Dutch Shell will continue until 2014, when the first ship is expected to leave carrying liquefied natural gas.

- BLOOMBERG