Investment decline hits hard, BIS Shrapnel

A severe decline in business investment, particularly in the mining sector, will make the next twelve months the Australian economy's most difficult phase of the Global Financial Crisis, according to BIS Shrapnel's Long Term Forecasts, 2009 - 2024 report, released yesterday.

A severe decline in business investment, particularly in the mining sector, will make the next twelve months the Australian economy’s most difficult phase of the Global Financial Crisis, according to BIS Shrapnel’s Long Term Forecasts, 2009 — 2024 report, released yesterday.

Despite recent encouraging reports on employment, consumer spending and house prices, Australian households should brace themselves for a run of bad economic news in coming months, the economic forecaster and industry analyst said at yesterday’s BIS Shrapnel Economic Outlook briefing, Sydney.

However, the outlook is for a solid recovery to get underway led by housing construction, with economic growth strengthening over 2011 and 2012 as consumer demand and, subsequently, business investment and employment regain momentum.

According to BIS Shrapnel’s Chief Economist, Dr Frank Gelber, mining professionals should not expect another quick boom, with investment in the sector deteriorating by as much as 33% over the next two to three years.

“It is only this decade we’ve seen a pickup in investment, which has been the primary driver for the growth that we’ve had,” Gelber said.

According to Gelber, the global credit and equity squeeze, affecting highly-geared minerals markets particularly, as well as a collapse in private investment, will be felt in the industry until 2011.

However, BIS Shrapnel Senior Economist, Richard Robinson, said continued growth in Asian countries, particularly China, will continue to underwrite demand in minerals exports.

“We are expecting strong growth in China, forecast to be up close to 9% in 2010,” Richardson said.

“China and the rest of Asia is expected to recover sooner and stronger than the rest of the world, despite contraction of demand in Japan.”

While the price of coking coal has fallen by 58%, from more than US$300 a tonne, prices are still the second highest on record, Richardson said.

“Another cut in the price of iron ore, up to 15%, is expected in the next year,” he said.

“There is no upshot for iron ore prices; the best they can hope for is a rollover.

“However, mining is still a profitable enterprise.”

According to Richardson, while exchange rates are expected to rise this year, following commodity prices, a correction in commodity prices and the exchange rate is expected before 2011, bringing the exchange rate down below .80c to the US Dollar.

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