The end is in sight for Australia’s mining and investment boom, according to Deloitte Access Economics‘ June 2012 quarter Business Outlook, but HSBC says there is a lot more still to come.
“A striking investment boom continues to do all the heavy lifting on our growth,” said Access director Chris Richardson.
“Yet the peak of the project pipeline is already in sight, meaning the key prop to the faster part of Australia’s two-speed economy is looking less certain the further out you look – though there’s still enough gas in the tank of huge resource projects to provide handy pipeline protection if Europe and China were to turn pear-shaped.”
Richardson warned in the meantime there was still “plenty of pain to go around”.
“Manufacturing growth only just has its head above water, and the utilities sector is also shrinking, in part due to the absence of any certainty on the future of carbon pricing,” he said.
Richardson said two-speed troubles were keeping inflation low, aided by related moderation in wage gains and the Australian dollars stellar strength.
“Even productivity is showing some signs of life and oil prices have dropped back, while carbon pricing is likely to be just a one-off boost to prices,” he said.
“But the productivity improvement needs to continue – and even if it does, a steadier Aussie dollar threatens less benign import prices, while wages may resume their rise as jobs recover and boomers retire.”
Given that much of Australia’s import spend is locked in for a couple of years due to huge resource construction projects and that non-resource exports such as manufacturing, tourism and education remain weak, Richardson warned the current account deficit may worsen from here.
He said that provided the outlook for Europe and China holds, there may only be one interest rate cut left in the cycle.
But despite the report’s predictions of an end to the boom, Richardson said the overall outlook for Australian growth is still looking better than most people realise.
He pointed to “surprisingly strong” consumer spending and said some sectors were holding up better than expected.
“This includes finance, which official statistics suggest is still growing rapidly and employing more people, despite announcements to the contrary, as well as recreational services, and transport,” he said.
“Even the public sector is growing well, with the huffing and puffing of the pollies yet to show up as a slowdown.
“At the same time, some sectors are still making a silk purse out of a sow’s ear, with the stupendous strength in engineering work keeping the wider construction sector afloat, and others still are just downright booming, with mining production and farm output growing at double digit rates.”
However, Access has been reliably forecasting the end of the mining boom since at least 2006, when Richardson told The New York Times “the only supercycles to date have otherwise been known as world wars”.
Paul Bloxham, chief economist at HSBC, told SmartCompany that while commodity prices look like they peaked last year, Australia can still look forward to growth from investment coming on line.
“The mining boom is going to have a number of stages: the first stage has been a big ramp up in income growth from rising commodity prices; the next stage is a ramp up in investment, which we are part way through; and the last stage is a pick-up in export volumes, which has only happened gradually and there is a lot more yet to come,” says Bloxham.
“Investment looks like its largest contribution to the economy will probably happen this year, but the export story will start to lift in terms of contributing to growth.
“It’s hard to call an end to the mining boom. It’s a long drawn-out process with a number of different phases to it.”
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