Report: Mining boom peak spells danger for the economy, but it's not all bad news

Australia's mining construction boom has well and truly peaked – and it is about to become a "notable problem" for the economy, a report says.

Deloitte Access Economics has just published its quarterly Business Outlook, a comprehensive and well-respected report on the state of the Australian economy.

It shows Australian economic activity will grow at a slower pace than usual for the next two years, while the unemployment rate will creep higher.

At the heart of the problem is the coming slow-down in mining investment.

''Not many in the business world have yet grasped the huge turnaround in major capital projects that is already under way,'' the report warns.

It paints a picture of an economy in transition, showing the dominating economic event in Australia is the so-called  ''baton change'' from the ''construction phase'' of the mining boom to its ''production and export phase''.

And much will depend over the next two years on the way the economy handles it.

''There's no denying the 'construction cliff' . . . is at the heart of the debate as to Australia's short term growth prospects,'' the report says.

''Recent years saw a deluge of development dollars go into the resources sector. But those dollars have already peaked, and the key question is just how fast or slowly the bonanza of recent years unwinds.''

The report shows why it has been hard to tell if the economy has been in good health or not, despite it being the envy of the developed world in recent years.

''The only reason the Australian economy is growing is because exports are,'' the report says.

''And, as is usually true when it is exports doing the heavy lifting, the resultant growth lacks much of a feel good factor.''

But it is not all bad news.

It says record-low interest rates, and the recent substantial fall in the value of the dollar, will help to strengthen parts of the economy that have been relatively weak.

That means the slower parts of Australia's two-speed economy – the manufacturing, retail, tourism and utilities industries – will begin to pick up pace.

It says the fall in the dollar to 88¢ means its job-killing role has been seriously weakened.

Victoria will be the ''biggest single beneficiary'' of the currency's decline, but NSW will also benefit.

Thanks to low interest rates, we are also now starting to see good news coming through in the retail industry.

Forward indicators are showing that the benefits of low interest rates will soon start coming through in housing construction figures too, particularly in NSW.

''[So] we don't see the slowdown already under way in the domestic economy as being as sharp as it was during the global financial crisis, or the slowdown that followed the introduction of the GST,'' the report says.

Chris Richardson, a director at Deloitte Access Economics, says the economy is still in relatively good health, despite the boom in construction associated with mining, which has been supporting growth in Australia, shrinking in size.

"When you consider that we've never attempted a transition of this size in the modern era, it's going okay,'' Mr Richardson said.

''To say economic growth is a bit below trend and that unemployment is creeping up, it could be far worse than that.''

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The story Report: Mining boom peak spells danger for the economy, but it's not all bad news first appeared on The Sydney Morning Herald.

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