Expect a bumpy ride as mining boom peaks
They also believe the so-called economic "baton change" from mining to non-mining parts of the economy could take longer than thought.
There is some uncertainty about whether we have already passed, or whether we are about to pass, the peak in mining investment.
But all agree it will not be a seamless process as non-mining parts of the economy "fill the gap".
Much will depend on things that are out of our control, such as the relative value of the dollar and the rate of Chinese growth.
This means Australian governments will need to respond to economic conditions with suitable fiscal policy. Economists warned against ideologically popular "austerity" measures.
"There are increasing indications that the end of the mining investment boom may be even more abrupt than previously anticipated," National Australia Bank chief economist Alan Oster said.
"While a falling Australian dollar and lower borrowing rates will help to shield the Australian economy from the worst effects of the ending of the labour intensive mining investment phase, they are unlikely to be enough to prevent unemployment from rising this year."
Overall, economists expect economic growth to remain "below-trend" for the foreseeable future - some say two years - thanks to a slower-than-expected recovery in the non-mining sector. They also predict the unemployment rate will increase to 5.9 per cent by June next year, above the budget forecast of 5.75 per cent. The Australian dollar has surprised many in recent months by falling from parity with the greenback to stabilise about US92¢.
Economists have revised their expectations for the future value of the dollar. This week Credit Suisse forecasters said they believed the dollar could hit US75¢ within 12 months. Economists say the dollar will need to drop further than its current US92¢ to help the transition.
"Certainly some sectors will benefit from lower Australian dollar and lower interest rates but those same sectors will also be adversely affected by the decline in demand as mining investment declines," Nigel Stapledon, of the Australian School of Business, said.
There are key parts of the non-mining economy that will need to do some heavy lifting during the transition. "The sectors that are most interest-rate and exchange-rate sensitive are expected to be areas of the economy that will pick up and take over as drivers of growth," HSBC Australia chief economist Paul Bloxham said.
"These include the housing market, housing construction, the retail sector and tourism industries."
Shane Oliver, the chief economist from AMP Capital, believes mining investment "likely already peaked, probably in the second half last year".
Australian Workers Union economist Misha Zelinsky said a falling dollar would improve growth prospects for trade-exposed sectors, such as manufacturing, tourism and education.
Frequently Asked Questions about this Article…
Economists say the mining investment boom is peaking or may already have peaked, and the transition to non-mining parts of the economy won't be seamless. They expect growth to remain below trend for the foreseeable future — some say up to two years — as the non-mining sector recovers more slowly than hoped.
Forecasters in the article predict unemployment will rise, with one projection putting the rate at about 5.9% by next June (above the budget forecast of 5.75%). NAB's chief economist Alan Oster warned that a falling dollar and lower borrowing rates may help but are unlikely to prevent unemployment from rising this year.
A lower Australian dollar and reduced borrowing costs are expected to help cushion the economy as mining investment eases. The dollar has already fallen from parity to around US$0.92, and some forecasters (Credit Suisse) say it could fall to about US$0.75 within 12 months — a further decline many economists believe is needed to aid the transition.
Economists named several sectors expected to do much of the 'heavy lifting' during the shift: the housing market and housing construction, retail, tourism, and other trade-exposed areas such as manufacturing and education. These sectors tend to be more sensitive to interest rates and exchange-rate moves.
No — economists warn it could be a bumpy or even abrupt process. There is uncertainty about timing and the relative value of the dollar and the pace of Chinese growth, so investors should expect volatility as the economy rebalances.
The article reports that economists think Australian governments will need to respond with suitable fiscal policy to changing conditions. They specifically warned against ideologically driven 'austerity' measures and urged pragmatic fiscal responses to support the transition.
Many economists in the article expect below‑trend growth for the foreseeable future — some estimating around two years — because the non‑mining recovery is likely to be slower than hoped. For investors, that implies a period of weaker overall economic momentum, which can translate into mixed returns across sectors.
The article highlights a likely bumpy ride: a slowing mining investment phase, potential rises in unemployment, and currency fluctuations. Investors should be aware that some sectors (housing, retail, tourism, manufacturing, education) may benefit from a lower dollar and lower rates, while others will feel the drag from reduced mining demand — so expect uneven outcomes across the market.
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