Resources boom leaves rest behind David Uren, Economics correspondent March 02, 2007
THE resources boom is gathering a fresh head of steam as miners gear up for an export boom, but new production capacity is shrinking in the rest of the economy.
Investment by the mining industry is expected to jump 22 per cent this year and firms expect to cap this with another extraordinary 37 per cent rise in 2007-08. But reflecting Australia's two-speed economy, the loss of confidence in manufacturing industry in the eastern states is leading firms to scrap investment plans.
Business investment by manufacturing will slump by 15 per cent this year and a fall of similar size is forecast for next year.
Investment is weakening in other industries such as retail, transport, finance and telecommunications. Combined, they lifted investment by 4 per cent this year but are expecting a 2 per cent drop in the year ahead.
The business investment figures released by the Bureau of Statistics yesterday show the divide between the east and west of Australia is growing deeper.
Business investment in NSW dived 22 per cent last year, the biggest fall since the recession in 1990. But with money pouring into its mining industry and a property boom in full swing, investment in Western Australia rose a phenomenal 46 per cent, reaching $18.2 billion.
Business invested more in Western Australia last year than in NSW for the first time.
In the December quarter, investment was lower than a year previously in all states except for Western Australia.
Deutsche Bank chief economist Tony Meer said that until 2005, investment growth was broadly based across all industries, but was now narrowly focused on mining. "If the global growth outlook becomes less optimistic and the miners start to finish stages of their projects and defer further work, all of a sudden, you've got a pothole in the economy," he said.
Mr Meer said the downturn in manufacturing was disturbing. He said manufacturing had initially responded positively to the challenges from Chinese competition, the downturn in the housing industry and a high dollar.
"It was under pressure but went on the front foot showing that the only way to maintain relevance was by aggressive capital spending," he said.
"It seems that attitudes have turned in the last year or so, and that raises questions about where they are going to be in two or three years' time."
Commonwealth Bank chief economist Michael Blythe said the eastern states would continue to gain from the mining boom, with wealth distributed through government spending, company dividends and the purchase of services. "The continued very high levels of mining capital spending will eventually lead to higher mining exports and an acceleration in GDP growth," Mr Blythe said.
He said the flow of investment in all industries was raising the capacity of the Australian economy and reducing the risk of inflation.
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