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Mining exports could balance investment slowdown

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Economists are saying a pick-up in mining exports can counterbalance the mining sector downturn in the future.

According to UBS economists Scott Haslem and George Tharenou, increased export capacity could prop up Australia’s economic growth as mining investment peaks.

Haslem cautioned decreased commodity prices and project delays and deferrals hinted mining capital spending had hit its pinnacle, the Herald Sun reported.

“Australia faces a critical period,” he said.

“To avoid a period of weak activity and rising unemployment, Australia needs to rebalance back toward more domestic-led growth.”

Haslem said mining spending and investment hit a high when commodity prices rose in the past decade. He said this had contributed about 1.5 per cent a year to Australia’s GDP.

But now that mining investment has hit a peak, Haslem believes increased exports can “fill the growth hole”.

He also believes analysts are not realising the potential an export boom has to boost GDP growth.

“Our analysis suggests the pay-off post the capex boom – higher export volumes and lower import volumes – will add significantly to real GDP growth over the next three to five years,” he said.

Mineral exports rose 11 per cent in the March quarter, while imports of construction machinery used for mining investment plummeted.

With resource exports surpassing construction imports, Australian Mining reported it is indicative that Australia has reached stage three of the mining boom.

According to UBS analysis, export would grow at an above average yearly rate of 7.5 per cent from 2013 to 2016, he said.

Imports would grow at only 2.25 per cent over the same period due to lower capital imports and a weaker dollar, he said.

The two combined could add 1-1.5 per cent to year-on-year GDP growth and “could indeed fill the mining capex hole”.

The Bureau of Resources and Energy Economics said in June lower commodity prices could slice $16 billion of mining and energy exports this year.

It said the export value will be lower despite higher quantities of exports and a lower exchange rate.

Port Waratah Coal Services recently confirmed it expects to export less coal.

Chief executive Hennie du Plooy said he was “concerned there is some risk of a downside in the second half of the year as producers continue to review their situations”.

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