Australia might have avoided recession for 26 years, but now is not the time to be laid back.
The relief on Treasurer Scott Morrison’s face last month when Australia broke the world record for 26 years of uninterrupted economic growth was clear. No one wants to be the political leader who let the Australian economy slip into recession on their watch.
But breaking records, as good as that feels, is not predictor of future growth. There’s nothing about that achievement that guarantees tough times aren’t just around the corner. Indeed, Australia has flirted with recession several times over the past quarter century — not least during the Global Financial Crisis (which in other countries is called the Great Recession).
So, what is the state of Australia’s economic outlook? What is the mining industry’s role in it? And what can be done to guarantee our ongoing economic success?
Let’s start with the OECD figures.
Declining resources sector investment
According to the Organisation for Economic Co-operation and Development, Australia’s economic growth is projected to increase gradually and reach almost three per cent by 2018.
“The drag on growth from declining resource-sector investment will fade and gathering momentum outside the resource sector will support wage and employment growth, thus boosting consumer spending,” OECD analysts say. “Tightening labour and product markets will bring inflation up from current low levels.”
It’s a mixed review, but it’s not bad. But it’s the longer-term outlook that is cause for concern.
Westpac’s chief economist Bill Evans recently said he had concerns for growth beyond 2017. “Prospects for growth in 2018 look discouraging,” he said.
“Housing construction is likely to be contracting through 2018 while export growth will slow and the terms of trade are likely to be falling, slowing nominal income growth.
“Prospects for an offsetting boost from household spending and business investment are not encouraging given the ongoing negative feedback loop from weak labour incomes to consumption and sales,” he said.
What’s the future of mining in Australia?
But let’s turn to the prospects for the mining industry. It is, after all, one of the major sectors responsible for Australia’s quarter century of prosperity — thanks, in the main, to the incredible demand for steel and coal from a rapidly-developing China. WA’s mines accounted for nine per cent of national GDP in 2012, at its peak.
But since then, China has been diverting its investments elsewhere. There’s been a downturn in mineral commodity prices and mining companies have been shedding jobs. Some 75,000 people have been made redundant since the industry’s peak, leaving about 200,000 people directly employed by the industry.
So, is it all doom and gloom now that Australia is in the final throes of the mining investment boom? Not necessarily. There are “green shoots” — including the growth in mining rare minerals and metals needed for renewable energy and other technologies.
Fixing the Australian economy
As for the rest of the economy, however, Citigroup Chief Economist Dr Willem Buiter told The Market Mogul the increase in debt relative to incomes within households has made the Australian economy less resilient to future shocks. He says the Federal Government should start investing in infrastructure projects to alleviate economic problems facing Australia before they take hold. If significant changes aren’t made, there could be difficult times ahead for more sectors of the economy than just mining.
If you’re looking for your next big opportunity in the mining industry, get in contact with the team at Mining People International.