Overall Economic Outlook
According to the RBA the overall outlook for Australia is positive. There is an expected trend for non-mining company business activity value (currently represents 85% of the economy) to grow at an average 1.5% expected over the next two years. Compared to the mining sector, which is expected to grow at 15%, this seems small. However, collectively this all represents an expected growth of above 4.5% by Q2 in 2012 with an overall expected increase of above 3.75% over the next two years. When comparing this against the world trend this is very good news indeed!
Looking back and including the Global Financial Crisis (GFC), mining growth in Australia still accounted for an average 6.25% per annum over the last 6 years, with non-mining lagging behind at 2.25% per annum. We have all read the news about a two speed economy and the lack of consumer sentiment. The question begs: is Australia’s mining sector robust enough to withstand the current negativity in the global markets and continue to grow? Short of a major adjustment (as we saw in the GFC where commodity prices feel significantly (15%) over six months), the outlook is positive. However, one thing to consider is that most of the mining spend is already committed, with many projects already under-way, but there are those just starting with at least another 2 spend years left to run.
According to the RBA, the current investment in resources and the export boom is expected to see the Australian Mining sector grow steadily over 2012 and 2013. This growth naturally increases the overall GDP trend. Comparatively, the non-mining sector growth is expected to be weak. One statistic worth noting is that the mining investment spend is currently stronger than at any time in the past 150 years of Australian history.
Questions and Issues for the Non-Mining Sector
Looking past the noise, we have to pick out some leading indicators to see the true impact of the current lack of confidence in the Australian Market. One such indicator is the housing construction numbers. The value of residential construction approvals has significantly weakened. Non-residential approvals are at recessionary lows. Added to this are the retail statistics which continue to show a decline and a lack of confidence.