Mining to boost economy

Mining to boost economy

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The economy is set to grow by more than three per cent each year for the next few years, according to BIS Shrapnel.

A new report by BIS Shrapnel found the Australian economy is in pretty good shape thanks, in large part, to the robust mining activity.

However, there is concern that growth will be stifled as evidence mounts that the mining boom is over.

Last week, BHP Billiton announced it would cut $50 billion worth of mining expansion projects.

Despite this, BIS Shrapnel’s chief economist Frank Gelber said there is no reason to panic.

“Mining investment will continue to grow, albeit more slowly, for a few years yet,” he said.

BIS Shrapnel forecasts have had a mid-decade downturn in mining investment forecasts for some time.

It’s the magnitude of the eventual downturn in mining investment that will determine the severity of the impact on the rest of the economy, according to Mr Gelber.

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. Meanwhile, non-mining businesses are not investing enough. Current economic growth will eventually absorb excess capacity, prompting the next round of business investment.

“That will impact on the performance of different industries,” Mr Gelber said.

“Despite any weakening in investment, mining remains extremely profitable, with strong production in prospect. The current media discussion is about mining investment, which is stimulating investment-related activity in design, construction, equipment and business services, and adding significantly to our capacity to produce commodities.

“On our forecast of continued high commodity prices, the Australian dollar will remain high for a few more years yet. This will keep pressure on other trade-exposed industries that are already suffering from structural change.”

Staff Reporter

The economy is set to grow by more than three per cent each year for the next few years, according to BIS Shrapnel.

A new report by BIS Shrapnel found the Australian economy is in pretty good shape thanks, in large part, to the robust mining activity.

However, there is concern that growth will be stifled as evidence mounts that the mining boom is over.

Last week, BHP Billiton announced it would cut $50 billion worth of mining expansion projects.

Despite this, BIS Shrapnel’s chief economist Frank Gelber said there is no reason to panic.

“Mining investment will continue to grow, albeit more slowly, for a few years yet,” he said.

BIS Shrapnel forecasts have had a mid-decade downturn in mining investment forecasts for some time.

It’s the magnitude of the eventual downturn in mining investment that will determine the severity of the impact on the rest of the economy, according to Mr Gelber.

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. Meanwhile, non-mining businesses are not investing enough. Current economic growth will eventually absorb excess capacity, prompting the next round of business investment.

“That will impact on the performance of different industries,” Mr Gelber said.

“Despite any weakening in investment, mining remains extremely profitable, with strong production in prospect. The current media discussion is about mining investment, which is stimulating investment-related activity in design, construction, equipment and business services, and adding significantly to our capacity to produce commodities.

“On our forecast of continued high commodity prices, the Australian dollar will remain high for a few more years yet. This will keep pressure on other trade-exposed industries that are already suffering from structural change.”

Mining to boost economy
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