Last July, budget advisory group Deloitte Access Economics announced that Australia’s mining boom would come to an end within the next two years.
In accordance with its December 2012 quarter Business Outlook report, the company declared today that may happen sooner: the boom is now forecast to peak by the end of 2013. The high Australian dollar, coupled with government spending cuts, are putting excess pressure on the manufacturing industry and will likely make economic recovery much more challenging, Deloitte said.
“The strongest contributor to Australian growth will peak, so the rest of the economy needs to fill a potential pothole,” the Sydney Morning Herald reported from Deloitte. “But federal and state government cuts have deepened that pothole.”
And it’s going to take more than assistance from the Reserve Bank of Australia to bring the economy back on level ground: “Although interest rate cuts will help retail spending and housing construction more than is yet realised, that won’t be enough of itself,” Deloitte said.
According to Mining Australia, Deloitte reported that Australia’s planning pipeline “fell from 56 per cent in June 2011 to 40 per cent in June 2012,” and another report commissioned by Newport Consulting revealed that only one-quarter of Australian mining companies planned to make a significant capital investment in 2012.
Therefore, rather than financing “speculative long-term projects,” Australian resources companies should adopt a “quality over quantity” attitude and decide which projects are most worth their time and funding.
“Mining companies can no longer lay claim to a deep portfolio of expansion projects when only a percentage of them are viable,” said Deloitte.
“Instead, companies must narrow the focus to those projects capable of delivering a demonstrable return on capital.”