00:00Australia is betting on the rollout and development of AI to drive economic growth over the next 40
00:04years. The Treasury's latest intergenerational reports says AI is expected to help deliver its
00:10long-term labour productivity target of 1.2% a year. It's estimating $150 billion could be sent
00:16on Australia data centres by 2030, 162 already operating, about 130 more planned at this stage.
00:23The report also projects average annual economic growth will slow to 2% by the mid-2060s.
00:29Let's take a deeper look into this report and its varied findings. Richard Zitzinger is a group
00:34chief economist at ANZ. I'm expecting that you pulled through every single word of it. There is a
00:39lot in terms of the upside, the downside, the demographics are really interesting too.
00:43Yeah, I think the thing about this report is it forces us to think about the long term and in
00:47that
00:48sense it's useful and makes us think about some of the forces impacting on the economy and, you know,
00:54recognise, not that we always need reminding, but sometimes it's useful that the choices
00:58Australia makes today are going to have implications as we go forwards. Australia,
01:03like many economies, has seen slower productivity growth post-pandemic. There's obviously some
01:09pressure for population growth to come down. For Australia, that population peak projected at
01:162060s. For a lot of other economies, it's closer than that. And then, of course, wrestling with this
01:21data centre story, which for Australia seems like an overloaded buffet we simply can't absorb,
01:28you know, we need to be a bit choosy about what we want and make some difficult choices. And one
01:32of
01:32the difficult choices, I think, is how much do we want some of these extra investment pieces versus
01:38which build prosperity for tomorrow versus consumption today?
01:43Yeah, there's so many pieces of the AI theme. And I think at the moment everyone's struggling to work
01:48out what the correct metaphor or analogy is. There's likely more than one. But do you think,
01:54first and foremost, it is the answer to the productivity woes that we've been pegging it to?
01:59Look, you would hope it would help. There's a lot of investment going into a sector,
02:02the whole purpose of which is meant to be to raise productivity. So you would hope that we're going
02:08to get something out of this AI story. There's also obviously the strategic competition,
02:16the strategic insurance aspect to AI. And on that score, Australia probably being the most favoured
02:22data centre investment destination for Western capital outside the US gives Australia a pretty
02:30large strategic opportunity to make some difficult choices. Unfortunately, consumption's staying quite
02:37robust and that's causing an interest rate problem. We spoke with Chris Oberoi from the Bank of America
02:42conference yesterday to take a listen in terms of their views on how this data centre rollout could
02:47happen. Economist and our macro team in Australia just put out a report sort of thinking about the AI
02:53build in data centres and highlighted that we could have a repeat potentially of what we saw in the
02:59early 2000s of mining. And the numbers are pretty staggering, roughly 6% of GDP and potentially 180
03:06billion Aussie dollars of investments. And this comes at a time where there's inflation impulse
03:10in the system. So the view is inflation will be a cause of concern in the near term and over
03:16time
03:17because of productivity and capital stock, maybe we get disinflation. On the energy, really important
03:23point. If we get a disorderly news flow over the next few months, if we don't get resolution, parts of
03:32Asia are very dependent upon energy from the Middle East. And this could be a concern and a headwind.
03:39Do you think the comparisons to the mining boom, the super cycle are useful?
03:44Look, it's a natural comparison because of how unusual and one off that period. And this feels unusual and one
03:50off.
03:51I'm hesitant about it though. I mean, we don't look at Stephen Bradbury's Olympic gold medal when he won because
03:57the
03:58three competitors in front of him fell over as the template for other gold medals. We
04:02accept Stephen's victory as a fantastic event. We should accept the mining boom as a fantastic event.
04:08And this is another fantastic opportunity for Australia. Let's judge it on its own merits rather
04:13than always comparing it to the Bradbury that came before.
04:17Love bringing that up at any point. But how much are you worried about the demographic part?
04:23None of it is particularly surprising when it comes to a declining birth rate, when it comes to the risks
04:26of an aging population.
04:28Do you think policy wise, Australia is, you know, well placed to deal with those risks?
04:34Look, successful immigrant economies are better placed than others. In this sense, Canada and other places like the UK,
04:41UK also and New Zealand also have some advantages. The challenge is birth rates are declining sharply
04:48everywhere. There's very few regions now that have birth rates above the replacement rate of 2.1.
04:54Global population will probably peak in the 2050s, maybe before, given what so many countries have done to
05:03house prices, including this extra special story in Sydney. So we're going to have to face demographics.
05:10And I think you can see it already. The number of over 80s entering that age cohort is in the
05:17process
05:17of tripling from what we've been used to the last couple of decades. And of course, every country is
05:23competing for kind of prime age labour. We all want to have more defence spending and more infrastructure
05:30and more AI and more housing. And all of these things take that prime age labour force, which is in
05:35relatively less supply. So I think demographics is an enormous constraint, not just on Australia,
05:41but on the world's ability to deliver what it wants.
05:43The immigration policy is always a big pressure point, right? Do you think the changes that have
05:48been suggested by the government are going to be helpful? Because obviously you're weighing up,
05:53what does it mean for demand? What does it mean for rental demand? But what does it mean for consumer
05:57demand? What does it mean for the gig economy, where, you know, a lot of this is being
06:01fuelled by some of these students, for example?
06:03Yes, look, it's a good question. And it's a real area of policy debate, and not just in Australia,
06:08but in lots of other countries. Germany's had, you know, more deaths than births since 1971,
06:14but its population has grown, you know, entirely because of immigration. And we've had some surprising
06:21election results in Germany with immigration an issue. I think probably what I can do as an
06:26economist is talk to some of the economics of the issue. And in policy discussions, often we like
06:32to go for what's the number or what's the outcome. And I think with immigration particularly, the detail
06:40often matters as much or if not more than the numbers. So what skills does Australia want and
06:46need? And what's our role as a humanitarian country to offer solace to those who are fleeing persecution?
06:56When you look at this report, and you look at the wealth that's been built over the past
07:01generation, so much of it has come down to the property policy settings, right? That's changed
07:07a lot. And we can see that in terms of where we're at in the property slowdown. Does that change
07:12how wealth building occurs for the next generation? Look, it might. Certainly, it's hard to think that
07:19property prices rising faster than income could go on forever. It just doesn't seem to make intuitive
07:24sense that those trend lines could persist. And so whether it was this policy or something else,
07:29I think it was inevitable that there was enough of an upswing against rising house prices that we
07:34would get some sort of policy change. The straitjacket, of course, is there's lots of people who don't
07:39really want property prices to fall, but clearly lots of people who don't want them to rise. And
07:43that's the wrestle we've got now. I think with the two more rate hikes we expect, I think the property
07:50market's going to be weak for quite some time. Typically, property prices typically don't bottom
07:55without rates coming down once they start to fall. And there's no prospect on our forecast for the
08:01next couple of years for lower interest rates. That suggests a structurally weaker property market.
08:06That's a long peak to trough then. It's a long peak to trough. And of course,
08:10we've also had some quite different internal dynamics over time. There are sub-national markets
08:16where, you know, if you were being cavalier, you would say they're only investor markets. You know,
08:21they've been bid up to price points that there's really not much local appetite for property at that
08:28price level. And so what happens to those markets is some of those investors start to sell out,
08:33and the new investors don't have the same tax advantages. I think we're going to see
08:37quite a reallocation of housing stock in Australia. Richard, really great to have you with us. Richard
08:41at Sanger Group, Chief Economist at ANZ. We do have more on Australia ahead. That's every Tuesday
08:46at 10.40am if you're watching here in Sydney, 8.40am in Hong Kong. You can also tune in to
08:51the
08:51Bloomberg Australia podcast, delving into the biggest stories shaping the country's role in global
08:56business. You can find that on Apple, Spotify or Bloomberg.com. More ahead on the Asia trade,
09:01this is Bloomberg.
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