RBA pessimistic as resource boom fades

The Reserve Bank of Australia has expressed concern increasing global supplies of cheap energy mean future gas projects may become less feasible.

The RBA is pessimistic about the strength of the resource boom, warning yesterday mining investment faces ‘considerable uncertainty’ over the next 12 months.

Leading economist Saul Eslake believes new gas projects will not get the nod as gas prices increase and competition rises from the US’s ‘shale revolution’, the AFR reported.

He said there is a 25 per cent probability of a recession and recommends Australia follow the footsteps of the rest of the developed world in cutting rates close to zero and implement a type of money printing called quantitative easing.

Australian Mining reported yesterday labour productivity growth in mining has dipped almost 6 per cent in the year to March.

Price Waterhouse Coopers' labour productivity report shows mining labour productivity for the 12 months to March was 5.7 per cent. This, in spite of an 8 per cent increase in output and a 15 per cent increase in hours worked.

A PwC report in April recommended mining companies to shift focus towards lifting productivity instead of digging more minerals.

As companies implement cost cutting measures resulting in job losses, the report suggested the cost cutting has also been fuelled by declining productivity levels.

Chief executive of the Minerals Council of Australia Mitch Hooke said there is a need to eliminate cost impediments to growth and move the ‘political narrative from spreading the bounty of the mining boom to how we continue to grow the industry for the benefit of all Australians’.

He said the minutes from RBA and Eslake’s report were ‘yet another reminder that we are on a burning platform’.

On Tuesday, the RBA reemphasised it is willing to cut interest rates further if required, after leaving the official cash rate at a record-low of 2.75 per cent two weeks ago.

In a bid to stimulate the non-mining sectors of the economy, policymakers have been slashing interest rates since late 2011.

The central bank is hopeful the Australian dollar will continue to fall and policymakers said the dollar remains at a ‘high level’, in the wake of export price falls over the past 18 months.

“It was possible that the exchange rate would depreciate further over time as the terms of trade declined, which would help foster a rebalancing of growth in the economy,” the RBA minutes said.

The dollar fell to US94.73¢ late Tuesday from US95.43c just before the minutes came out.

Mining investment has almost hit its peak but it is not clear how that spending would dwindle.

The comments are a contrast to last month’s Australian Bureau of Statistics survey which predicted more growth in capital expenditure plans.

The bank said company spending usually ‘differed by a wide margin from their forecasts as reflected in the ABS survey’.

“There is considerable scepticism among the RBA staff about the reliability of the message from the latest official investment intentions data,” JPMorgan Australia chief economist Stephen Walters said.

“One explanation could be that the bank’s liaison program with corporates is telling them something quite different.”

The ABS recently said Australia's mining boom has reached stage three as resource exports overtake construction imports.

Mineral exports rose 11 per cent in the March quarter, while imports of construction machinery used for mining investment slumped.

Australia saw a $5.6 billion trade balance lift in the March quarter.

Eslake said as the resources boom fades, non-mining sectors were not reacting as fast enough to lower interest rates as they usually did.

“The chances of a smooth ‘baton change’ between growth led by resources investment and growth led by exports and other components of domestic demand are declining.”

He also disputed an official Bureau of Resources and Energy Economics forecast that around $3.1 billion of resources projects undergoing feasibility studies would begin.

A BREE report last month said Australia has missed the boat on $149 billion of resources projects spending, with 18 projects either suspended or abandoned.

BREE said capital expenditure in the resources sector is expected to dive by two-thirds in the next five years.

The report predicted a $70 billion fall by the end of 2017, with investment predicted to fall to $256 billion by the end of the year.

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