Weaker capex hints mining boom end

The mining investment boom may have peaked but economists are still optimistic about the strength of the Australian economy as business spending expectations stays high.

The Australian Bureau of Statistics showed weaker private capital expenditure for the March quarter but figures also showed a positive outlook in spending expectations for the 2013-14 financial year.

This includes a slight boost in mining investment expectations, the SMH reported.

Economists predict the Reserve Bank would not be likely to reduce rates against at its board meeting on Tuesday on the back of this data. Financial markets have reduced their predictions of a 25-basis point cut to 18 per cent.

HSBC’s chief economist for Australia Paul Bloxham said the figures indicated a plateau in mining investment, not a huge dip.

“The mining story is still supportive of growth. That’s important because that means there is more time for the rest of the economy to start picking up and take over in terms of being the key drivers of the economy,” Bloxham said.

Building approvals increased to a seasonally adjusted 9.1 per cent in April, after a 5.5 per cent fall in March.

Approvals rose to 18 per cent for private sector units and 2.5 per cent for private sector houses compared to the previous month.

Bloxham said the boost in building approvals was indicative of an upward trend in non-mining sectors of the economy.

Lower interest rates have increased retail sales in the first quarter.

Capital expenditure experienced the steepest dip since the financial crisis, falling by 4.7 per cent for the March quarter. It followed a fall in building and equipment investment.

Economists had predicted a 0.5 per cent increase.

Miners increased their spending expectations by 2.7 per cent to $101.9 billion.

Business spending was predicted to hit $163 billion for this financial year, 2.6 per cent higher than the previous year.

Economist from JPMorgan Ben Jarman said the weak March quarter figures would strain the first-quarter GDP figures to be released next Wednesday.

But he said the capital expenditure estimates were ‘fairly reasonable’.

“In the context of a supposedly very sharply fading mining investment story and some weakness from manufacturers, [it] was probably a slightly more upbeat position than people were fearing,” Jarman said.

The mining boom is moving to stage three, with resource exports overtaking construction imports.

Mineral exports surged 11 per cent in the March quarter but imports of construction machinery used for mining investment fell.

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

Rising exports and falling imports delivered a $367 million surplus, up from a $5.2 billion deficit in December.

A report from the Bureau of Resources and Energy Economics said capital expenditure in the resources sector is expected to dip by two-thirds over the next five years. A fall is also expected in the value of projects already in the pipeline.

Minerals Council of Australia chief Mitch Hooke said rising costs, decreasing productivity and more regulation and taxes were punishing the industry.

It is predicted to fall to $70 billion by the end of 2017 while a fall to $256 billion by the end of the year is expected, the Bureau of Resources and Energy Economics report said.

ANZ’s head of Australian economics Justin Fabo said the drop in mining investment would be more pronounced from mid-2014.

“While mining investment looks to be holding up in 2013-14 and may not have peaked yet, more of this represents very large gas projects, which have a relatively higher import component than other mining projects [and] so will benefit the domestic economy less,” Fabo said.

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