Though mining investment will continue to underpin activity over the next few years, a broadening of investment beyond mining will take over as the primary driver of growth, which will soften the impact on the economy.
According to leading industry analyst and economic forecaster, BIS Shrapnel, the economy is set to grow by more than 3% each year for the next few years, but it will still be really tough for many businesses as the mining industry has been the key driver of growth for many years now.
However, BIS Shrapnel’s Chief Economist, Dr Frank Gelber believes that there is no reason for panic as mining investment will continue to grow, albeit more slowly for a few more years.
BIS Shrapnel has been forecasting a mid-decade downturn in mining investment for some time, but it’s the magnitude of the eventual downturn that will determine the severity of the impact on the rest of the economy.
As mining investment peaks in 2014, and starts to decline, non-mining investment will stabilise and start to pick up, taking over as the engine of growth and smoothing the transition.
Stock shortages, population growth, and lower interest rates should stimulate the housing market and dwellings investment. Current economic growth will eventually absorb excess capacity, prompting the next round of business investment.
Highlights of the BIS Shrapnel forecast report:
- Mining remains extremely profitable with strong production in prospect
- Mining investment stimulating investment-related activity in design, construction, equipment and business services
- High Australian dollar will keep pressure on other trade-exposed industries already suffering from structural change
- Most of the economy including health services is sheltered from the impact of the currency
- Softening of mining-related business will strengthen the broader economy, which will drive growth of service industries including property
- Building industry expected to improve, supported by a recovery in dwelling building from late this year
- Non-dwelling building to pick up next year as supply tightens after many years in the doldrums
- Increase in private sector building to offset the present decline in public sector building following near completion of the BER program
- Ongoing mining investment will positively impact the construction industry over the next year
- Telecommunications investment set to expand rapidly accompanied by increased output and employment in the industry
- Education likely to stabilise after a fall of almost 20% in the annual value of export of education services to below $15 billion from $18 billion in 2009/10
- Growth in the education industry will be supported by ongoing demand from Australian students with increase in population and government spending on education
- Retail trade to continue its recent recovery supported by the current low level of interest rates, increased household incomes and continued growth in domestic demand
- Accommodation industry has CBD hotels benefiting from strong business travel, but tourism affected by the high dollar
- High Australian dollar, rising production costs, and weakness in key international markets will impact manufacturing
- Minimal growth in output and employment in public administration and safety
- Output growth in the electricity, gas and water industries to remain subdued as businesses and consumers reduce energy usage to offset rising costs
- Investment and employment expected to remain strong in electricity industry
- Weak outlook for administration and support services as businesses cut costs and go in-house
The BIS Shrapnel Business Forecasting Conferences are held in March and September each year.
Schedule of the upcoming September conferences:
- Brisbane: Tuesday, 11 September at the Stamford Plaza
- Melbourne: Thursday, 13 September at the Sofitel on Collins
- Sydney: Tuesday, 18 September at the Four Seasons Hotel
- Adelaide: Thursday, 20 September at the Intercontinental
- Perth: Friday, 21 September at the Hyatt Regency