As Australia reaches the end of its mining and resources boom the country faces a proverbial turning point in investment critics say the economy could be facing off against some particularly tough problems. The mining boom that lasted a decade, ranging from Western Australia’s Pilbara region to Queensland’s Gladstone has been pegged as the country’s economic saviour. It was so “safe” that it protected the economy throughout the global financial crisis. But now that times are changing an urgent substitute is required.
The last five to ten years have witnessed inflations in the prices of both iron ore and coal as China has had an insatiable need for raw materials. The departure of this major player has had its effects on the market but China’s absence has been down played by the government. The government has defended its stance on the issue by alluding to the “mega projects” in the pipeline for the resources sector, implying that this is where the economy can pick up from. The project approvals will flood the economy with investments worth billions, according to the Bureau of Resources and Energy Economics.
$268.4 billion was committed to energy and resource projects by October this year. That means that 87% of projects have been finalised through financial decision but economists tell us it is too little to meet demands. They are asking pertinent questions about what will come after all this investment as the country does not have much support beyond what is on offer in the resources sector. As we come to the end of a resource boom the prices of commodities are stabilising or dropping in some cases. It also means that the number of investors the country has to borrow money from has dropped significantly.
$268 million has already been committed to resource investment, $292 billion of projects are stuck in the feasibility stage and $133 billion have been announced publicly. Those that have not been booked are considered questionable and unconfirmed and it is likely that the country will see fewer projects come to fruition than what was originally forecast. Furthermore the increase in value for committed projects is not so much a case of more projects being pushed through than it is a matter of the costs to complete the projects going up.
In retail growth has been very modest while services and manufacturing are contracting. The general outlook for business in 2013 is that it will also contract. This, in light of the government’s commitment to budget surplus, is likely to mean that the government’s contribution to economic growth is likely to fall short of what is required.
The RBA thinks that to get around this consumer spending needs to be stimulated through lower interest rates. According to the RBA it is construction that will step into the big shoes left by the departure of the mining industry. Housing Industry Association spokesman David Bare has said that the construction sector is likely to be affected by the government’s red tape and the expense of doing business in the country.
With the cash rate at the same level as during the global financial crisis, non-mining sectors are particularly vulnerable, despite the hub of activity in the mining sector and interest rates hitting record lows. Banks like Bankwest have been relatively slow to react to the interest rate reductions with few of them passing the full interest rate reduction onto their customers and customers, of course, have been even slower to respond to the bait that has been put in front of them.
The RBA has also shown its interest in dropping the Australian dollar from its current high in order to give more impetus to tourism and manufacturing.