Soft landing tipped, despite end of mining boom and fewer jobs
Deloitte, which works closely with the mining industry, predicts mining investment will keep rising longer than the Reserve Bank forecasts. It says the boom is unlikely to peak before Christmas, and mining investment will slow next year rather than fall off a cliff.
But the company's director, Chris Richardson, conceded that a mining bust could not be ruled out - and if other mining companies followed the lead of Woodside, which was scrapping its $43 billion Browse Basin project, "a pretty big pothole could loom from the middle of 2014 onwards".
It forecasts that West Australia will be hit hardest, even in a benign scenario. In 2013-14 Queensland will replace it as Australia's engine of growth, and by 2015-16 it expects even Tasmania to be outgrowing WA. NSW and Victoria are forecast to continue growing about half a percentage point slower than the national growth rate, but the only state or territory it believes is in danger of recession is the ACT, which it predicts will be hit hard by post-election spending cuts.
The latest Access Business Outlook, released on Tuesday, forecasts growth to remain a bit below trend until 2015-16 before rising.
Job growth would also remain subdued, with a net 40,000 manufacturing jobs to go in the next three years, but unemployment would remain about the same as older workers retire rather than joining the dole queues.
It warns that workforce participation might have peaked for all time in 2010, when 65.9 per cent of adults either had a job or were looking for one. That would have serious implications for potential growth rates. Access warns that "demographic destiny" is against us. "An ageing workforce remains a key to understanding what's going on in the job markets."
Australia has now passed "the key inflection point" where the negative effects of an ageing population outweigh the positive impact of increasing participation, it says.
With the economy hitting "increasing headwinds", men in particular are dropping out of the workforce, it said. "Chances are, we'll look back on 2010 as the highwater mark for the willingness to work in Australia. It was a time when the economy was healthy, and even more importantly, there were heaps of boomers working."
Frequently Asked Questions about this Article…
Deloitte predicts Australia is likely to make a soft landing because a long period of low interest rates should help consumer spending and home building pick up the slack as mining investment slows, so growth is expected to ease rather than crash.
Deloitte expects mining investment to keep rising longer than the Reserve Bank forecasts and says the boom is unlikely to peak before Christmas; it forecasts investment will slow next year rather than fall off a cliff. However, a mining bust cannot be ruled out — the report cites Woodside’s decision to scrap its $43 billion Browse Basin project as an example of how a wave of cuts could create a serious downturn from about mid‑2014.
Western Australia is forecast to be hit hardest. Deloitte expects Queensland to replace WA as the engine of growth in 2013‑14, and by 2015‑16 even Tasmania may be outgrowing WA. NSW and Victoria are expected to grow about 0.5 percentage points slower than the national rate, and the ACT is the only state or territory identified as at risk of recession due to post‑election spending cuts.
The Access Business Outlook forecasts that growth will remain a bit below trend until 2015‑16 before rising again, reflecting the transition as mining investment eases and other parts of the economy absorb the change.
Deloitte expects job growth to remain subdued, with a net loss of around 40,000 manufacturing jobs over the next three years. Despite those losses, unemployment is expected to stay about the same because older workers are likely to retire rather than join the unemployment queues.
The report warns workforce participation may have peaked in 2010 at 65.9%, and that Australia has passed a key inflection point where the negative effects of an ageing population outweigh the benefits of higher participation. An ageing workforce — and falling participation among men in particular — is likely to weigh on potential growth rates.
According to Deloitte, a long period of low interest rates is expected to encourage consumer spending and home building, which could help fill the gap as mining investment slows. Those dynamics are central to the soft‑landing scenario the report outlines.
Key risks highlighted in the report include a potential mining bust if major companies follow Woodside in cancelling big projects, weaker employment if retirement patterns change, state‑level downturns (notably in WA and possibly the ACT), and longer‑term drag from an ageing population and falling workforce participation.
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