TOURISM BOOM: WE AIN'T SEEN NOTHING YET

Dr Frank Gelber (pictured), chief economist with BIS Shrapnel, told a Brisbane briefing this week that the next growth story unfolding for the Australian economy is in the services sector, and particularly tourism and education.

Both of these industry sectors are now exceeded pre-GFC levels, picking up strength after years of 'repression' from a strong dollar that at one stage was trading above parity with the US currency.

"We ain't seen nothing yet," says Gelber. "Five years from now these sectors will be booming, and I don't use that term lightly."

While China may be perceived as the growth market in both education and tourism, Gelber forecasts domestic travellers will be a major driver of momentum. He says education will also be a conduit for increased migration, adding to the economic growth story.

The key to the boom remains the lower Australian dollar, which Gelber says was 'ridiculous' at parity with the greenback.

"The dollar's not going to go up dramatically for a long time yet," he says.

"Now the norm is US70c to US75c, with the possibility that it will go below US70c. That's enough, not as low as I would like, but it's enough."

BIS Shrapnel says the optimum range for the dollar is between $US58c and $US70c. Gelber is confident that rising US interest rates will keep pressure on the Aussie dollar, while the Reserve Bank's cash rate is likely to stay at current levels as the US rate cycle unfolds.

Gelber doesn't see any move upwards in the currency 'for a long time yet'.

As for fears over a slowdown in China and the global economy, Gelber remains bullish that neither will derail growth in the Australian trade-exposed sectors.

Gelber says the US is 'doing fine' and while Europe is struggling it is showing signs of recovery that should put an end to the Eurozone recession cycle for some time.

"China's growth may have slowed, but it is still growing. Our problems aren't about world growth. Our problems are about Australia.

"We've got our own axe to grind, which is to rebuild our economic base and there are good conditions for that.

"Inflation is contained and the recovery in non-mining businesses is going to take time. We still have to absorb the shock of the drop in (mining construction spending)."

Residential building is peaking, and despite weak wages growth retail spending is still improving, he says.

"The consumer is absolutely crucial in this picture (and) people are still willing to spend.

"The structural shift is going to take time, but three years from now, perhaps even two, the negative shock will be gone."

Gelber forecasts tourism regions such as the Gold Coast and Cairns will be in the sweet spot of the looming boom, driving population and construction growth.

"They will be the big growth regions of the future," he says.

"Retail sales will be picking up, housing demand will be picking up. We will see  a classic upswing, the sort of thing that we saw in the mining regions, but not as strong, not as quick and not as fickle.

"What we've seen now are only the beginnings of a pick-up. We've got a long catch-up to go to get back to where we would have been if not for a high dollar.

"If you look at tourist towns they were booming before the dollar went up, then fell into a long period of dismal, supressed activity.

"Now the tourists are coming back, not just from overseas but more particularly domestic tourists as well. That is boosting activity across the board and it will end up boosting population growth.

"Because we think the dollar will stay low this is just the beginning of the process."