Slowdown in mining investment imminent: RBA

Mining investment is tipped to reach its peak this year and will likely contribute to below-trend economic growth before gradually picking up in 2014.

These were some of the remarks made by Christopher Kent, the Reserve Bank's Economic Assistant Governor, at the Bloomberg Australia Economic Summit in Sydney today. During his speech, Mr Ken warned of a slowdown in mining investment after 10 years of solid growth and said it would likely peak at eight per cent of GDP, despite statistics from the ABS indicating a jump in mining investment from the current financial year to the next.

However, the decline in mining investment - combined with the effects of the high dollar and ongoing fiscal consolidation - is expected to provide scope for other sources of demand to increase, according to Mr Kent. This represents a silver lining for non-mining business investment, which declined from 2008 to 2010 and remained "relatively low as a share of nominal GDP since then".

"Some of this demand will come in the form of strong growth in resources exports. For bulk commodities, where much of the investment has taken place, exports have already been growing strongly and this is expected to continue," said Mr Kent.
Mr Kent also expected growth in non-mining business investment would also partly be derived from a pickup in household consumption and improved consumer confidence.

"Consumer confidence has increased since last year to be above average levels currently. This doesn't mean that consumption growth will return to the very strong pace seen prior to the financial crisis, but it is consistent with consumption growing at least in line with incomes and at a stronger pace than was observed towards the end of last year. Indeed, the stronger retail sales data since the beginning of the year support this outlook. Higher consumption growth will also help to support business activity and investment."

In light of an imminent mining investment slowdown and hence, an improvement in non-mining investment, Mr Kent concluded that overall economic growth would likely be slightly below trend this year before picking up gradually through next year.

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