Here's why everyone is saying the mining boom is over
Fri August 31, 2012 12:44pm
In response to pressure from shareholders worried about poor returns in the weak global markets, miners have put the brakes on capital spending.
On the bright side
Official figures out yesterday showed the capital expenditure, which is a big indicator of the strength of the mining boom, is still very strong.
Australian Bureau of Statistics said it expected $119 billion to be invested in mining capital expenditure this year, representing the bulk of an estimated $181.5 billion of investment across the economy.
But Deutsche Bank warns of over-confidence that the investment pipeline is “locked-in”.
The rise and fall of the Dollar
The resources boom has fuelled the two-speed economy pumping up the dollar and in turn hurting manufacturing and retail.
If the boom is over analysts say we’ll see a rebalancing in the economy with other sectors such as retail, manufacturing, tourism seeing a bit of recovery as the resources sector contributes less.
And if it is over…
As history shows after many booms comes a recession. Deutsche Bank analysts are the pessimists predicting a recession for Australia in 2015. But local bank NAB says it’s unlikely that the recent fall in commodity prices will continue and expects prices to level out about now and to rise gradually ahead. Another recent report from BIS Shrapnel says mining investment will not peak until 2014.
Furthermore, resources projects in the pipeline do not peak out potentially until 2015. Planned expenditure on these projects is immense and will drive the overall economy’s growth path ahead. NAB says “those calling the end of the resources boom are likely to be pleasantly disappointed.”
According to a report released by Variant Perception Australia: The Unlucky Country, Australia is a classic dutch disease example where the economy is totally bent out of shape distorted by one sector - similar to Ireland's "Celtic Tiger" with their construction boom.
The report states that Australia will face a run on its currency, a deeper collapse in housing prices and a bank funding crisis as it attempts to come to grips with life after the mining boom.