RBA’s Heath Says Mining Investment Decline a ‘Significant’ Drag

By Benjamin Purvis  Nov 21, 2014
Bloomberg
The decline in mining investment will be a “significant drag” on Australia’s economic growth, even as exports of coal and iron ore provide a boost, according to the central bank’s head of economic analysis.

It’s uncertain how far and fast investment will fall or how much the mines’ operations will add to growth, the Reserve Bank of Australia’s Alexandra Heath said today in the text of a speech in Sydney. While China will probably find it more difficult to maintain its current pace of economic growth, the world’s second-largest economy should remain a large market for Australian resource exports for some time, she said.

“We have now seen the peak in mining investment and over the near term we expect that the fall in mining investment will be a significant drag” on gross domestic product growth, she said. “Iron ore and, to a lesser extent, coal exports are expected to continue to make a positive contribution to GDP growth in the next couple of years as productive capacity continues to ramp up.”

The RBA is keeping the benchmark cash rate at a record-low 2.5 percent to encourage non-mining companies to take a risk and invest as resources spending declines. While the property market has surged, businesses in other areas of the economy have been reluctant to spend even as the central bank sought to provide the right conditions.

The decline in commodities prices from iron ore to coal has helped lower the Australian dollar, although it remains above its historical average and the central bank has voiced concern about its strength. It bought 86.21 U.S. cents as of 11:00 a.m. in Sydney compared with an average of about 76 cents over the past three decades.

“Our assessment is that, despite the depreciation since early 2013, the Australian dollar remains above most estimates of its fundamental value,” Heath said.