Australia’s Mining ‘Cliff’: How far they have come? - NAB

Research Team at NAB, suggests that the transition of the Australian economy from mining to non-mining activity to date has been smoother than many had expected, aided by a low AUD and interest rates.

Key Quotes

“Nevertheless, the ongoing unwinding of Australia’s once-in-a-100-year mining investment boom presents significant challenges to a number of industry sectors and skill groups in the economy.

We believe that mining investment is currently more than half-way through the cycle, while employment is slightly below the half-way mark – with the difference likely to be related to the significantly higher labour intensity of LNG projects in the (near) completion stage of the construction phase.

Our analysis suggests that, given the existing pipeline of mining projects scheduled for completion, the investment downturn is a little over half complete in level terms. As a percentage of GDP, mining capex has fallen from 8% GDP at its peak to around 4¼% currently and expected to fall to 1½% of GDP by late 2018.

Higher mining output has not fully offset the drag from investment. Furthermore, the relatively labour-intensive nature of the mining investment phase (relative to the operational phase) means that the decline has significant implications for the local labour market.

We estimate that 46k mining jobs were shed between the peak in 2012-13 and 2014-15 and around 50k more will be cut going forward.

This will cause significant headwinds, especially in geographically affected regions and in certain specialised skill groups. However, it is not unmanageable at the national level with offsetting job creation elsewhere (particularly in services sectors) - we are forecasting 18k additional jobs to be created per month over the next few years, with the unemployment rate to track down towards 5½% by mid-2017before inching up thereafter.”