Australia's top central banker said on Friday it was too soon to call an end to the country's once-in-a-century mining boom, intensifying debate over the outlook for the resource-rich economy as miners shelve expansion plans and take-over deals. Fuelled by Chinese-led demand for its coal, iron ore and other resources, Australia's economy was one of the few in the developed world to sail through the global financial crisis without sliding into recession.
But questions over whether the decade-long bull run in commodities has ended have become louder in recent weeks as data shows China heading for the slowest pace of annual growth in more than a decade, driving down the prices of copper, iron ore and other raw materials. BHP Billiton , the world's biggest miner, this week shelved tens of billions of dollars in expansion plans due to soaring development costs, a high Australian dollar and an uncertain outlook, prompting the Australian resources minister to say the boom was over.
Reserve Bank of Australia Governor Glenn Stevens though said he saw little evidence to change his view that the mining investment boom he previously described as a "once-in-a-century" would continue and probably peak in the next year or two. "I probably describe myself as cautiously optimistic. I have tried to get people to see the glass half full rather than half empty, because I do think we risk talking ourselves into more gloom than we really should," he told lawmakers in his twice-yearly parliamentary testimony in Canberra.
The RBA expects mining investment to peak at about 9 percent of GDP over the next two years before fading and being at least partly replaced by a rise in exports as a $270 billion pipeline of projects starts coming on stream. "It is way too early to call the "end" of the mining boom(which even a government minister did yesterday, only to recant later), although it has become clearer in the middle distance," said Stephen Walters, J.P. Morgan's chief economist. "In the meantime, mining investment will remain a key driver of GDP growth this year and next."
Reflecting the other side of the argument, the central bank governor has been criticised for an overly optimistic assessment of the $1.5 trillion economy. "I see a huge bust coming, not just an end to the boom," said Charles Bradford, an analyst with Bradford Research in New York. "Especially for iron ore, there is too much capacity coming on line," he said.
Iron ore prices have tumbled this year, hitting a near three-year low below $100 a tonne on Friday , while benchmark thermal coal prices have slumped 20 percent to around $92 a tonne. That bodes ill for Australia's economy which relied on coal and iron ore for almost A$130 billion ($136 billion) worth of exports in the year to May, 38 percent of the country's total.
So far, however, evidence for a marked slowdown is scant. Australia's economy is humming along, with economists estimating it grew by nearly 4 percent in the second quarter from the same period last year. Unemployment remains low at just over 5 percent and other measures including housing and retail sales showing signs of improvement.
Comments
Comments are closed.