An abrupt fall in mining capital expenditure could trigger a recession, with the next 18 to 24 months the greatest risk period, according to Morgan Stanley research.
With most calling the peak of investment in the mining boom and a raft of poor economic data showing that non-mining sectors have not yet filled the gap, Australia's reliance on resources for gross domestic product growth may pose problems.
Morgan Stanley analyst Gerard Minack said mining investment might become a drag on growth this year, and while it was too early to assure a recession, "an earlier peak in mining investment also raises the risk that the decline in 2014 could be significantly more damaging that we have in our current forecasts".
While most economists would agree a rapid fall in mining investment is the most obvious catalyst for a recession, the chances of that happening are contended. "We're not forecasting a recession, but we're saying here's some evidence that the chance of a precipitous fall may be larger than people think," Mr Minack said.
The analysis takes a more sombre view on the level of mining investment in Australia.
Most analysts, including HSBC chief economist Paul Bloxham, said they expect expenditure in the resources sector to plateau.
"We're expecting to see growth rebalance from being led by mining investment to being led by other parts of the economy, in large part because of the effect that low interest rates are having in providing support," he said. Mr Bloxham said he expected retailing and housing to help fill the void, as cuts to the official cash rate filter through to the other parts of the economy.
This view was supported by the Reserve Bank in its May Statement on Monetary Policy, which said there were signs the shift was beginning, but there was "considerable uncertainty about how it will proceed".
"The recent ABS data on [non-mining] firms' capital expenditure plans for 2013-14 were positive. Nevertheless, other near-term indicators of investment remain subdued, despite conditions generally being favourable for investment overall," the Reserve Bank said.
Mr Minack said that during the first leg of the mining boom, the rise in terms of trade drove real national income growth 18 per cent faster than GDP growth over the past decade.
"With commodity prices now, in our view, past their peak, the terms of trade have swung from being a structural tailwind, to a structural headwind. Real national income has fallen through the past five quarters, even as real GDP has risen 3.8 per cent"
New focus on cost cutting as well as a decline in sentiment in the sector would suggest a more cautious approach and a fall in investment.
"Trend sentiment among miners is now below the level seen in the global financial crisis. Sentiment was last as poor as now at the tail end of what was a near 20-year bear market for the sector, in the late 1990s," Mr Minack said.