Mining boom to leave gap in growth

We have lived through a period of historically high terms of trade, with strong mining investment and economic growth, yet we have seen four years of negative cash balances amounting to an accumulated $172 billion in budget deficits. Picture: AP/BHP Billiton Source: AP

THE Australian economy faces a pothole in economic growth because non-mining investment is not adequate to fill the gap left by the fast-fading resources investment boom, an independent forecaster warns.

The total value of investment projects across the nation fell by $24.7 billion in the first three months of the year to $928.9 billion, says Deloitte Access Economics in its latest Investment Monitor.

After several years of booming activity, mining investment now stands just 0.8 per cent higher than a year earlier.

"It is difficult to shy away from the conclusion that Australia's high growth component of investment will soon be fading, with little prospect of an equivalent alternate investment driver coming through," Deloitte Access Economics partner David Rumbens says in the report.

"That's a bit like having Usain Bolt lead out your relay team, passing off to Homer Simpson for the second leg."

The value of definite projects - under construction or committed - rose by 1.5 per cent in the March quarter to a total $451.6 billion, the report released today shows.

But the value of planned projects - under consideration or possible - in the forecaster's database dropped 6.2 per cent to $477.3 billion.

Back in December, the forecaster predicted the outlook for mining investment depended on whether the green light was given in 2013 for the top 10 pending projects.

"With a quarter of the year gone, the largest of these - Woodside's $43 billion Browse LNG project - has been shelved, and the remaining nine seem no closer to going ahead," Mr Rumbens said.

Otherwise, large LNG projects continue to dominate the investment program with the value of oil and gas projects under way in excess of $200 billion.

Mr Rumbens believes there is potential growth for infrastructure investment that supports mining production, such as railways, port projects and electricity.

But he thinks other investment is likely to be steady rather than achieving much growth.

He says non-resources manufacturing investment has all but dried up, with little prospect of a resurgence while the high Australian dollar hurts the sector's competitiveness.

Non-residential building projects are also showing little signs of life, with new approvals still below the peak seen prior to the 2008-2009 global financial crisis.

"Low interest rates will provide support but the overall environment for office and retail demand still remains somewhat dour," Mr Rumbens said.

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China's economic growth slows

A worker carries steel bars on top of the construction site of Shanghai Tower while the skyscrapers in the Pudong area are shrouded in the heavy fog in Shanghai, China. Picture: AP Source: AP

CHINA'S economic growth slowed unexpectedly in the first three months of the year, fuelling concern about the strength of its shaky recovery.

The world's second-largest economy grew by 7.7 per cent in the first quarter of this year, down from the previous quarter's 7.9 per cent, the government reported Monday. That fell short of many private sector forecasts that growth would accelerate slightly to 8 per cent.

A recovery still is under way but is "very soft - very slow and gradual," said Societe Generale economist Wei Yao.

China's growth rebounded late last year from its deepest slump since the 2008 global crisis but analysts say a recovery will be weak and still is being supported by government spending, while growth in consumer spending is subdued.

The economy has given mixed signals, raising questions about whether a full-fledged recovery was gaining traction.

Inflation fell in March, suggesting consumer demand might not be as strong as Beijing hoped. Import growth accelerated, suggesting companies and consumers were buying more, but some analysts said those figures might be distorted and unreliable.

Bank lending has risen but Monday's data showed investment, which is a key driver of the latest recovery, slowing.

Spending on factories, real estate and other fixed assets rose 20.9 per cent in the first quarter, down from the 21.1 per cent rate for the first two months of the year.

That shows the economy suffers from structural problems including excess production capacity in some industries that makes more investment unprofitable, said Yao.

"Given all this credit injected into the system, the future should look better," said Yao. "Nevertheless, the level of efficiency in the economy has declined. The same amount of money will no longer produce the same amount of growth."

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Record surge in jobs growth

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UNEMPLOYMENT has stayed steady at 5.4 per cent as the economy continues to outperform expectations with the creation of almost 71,500 jobs last month - the largest amount in almost 13 years.

The surprise result has lessened the prospects of future interest rate cuts but economists warn the strength of the new jobs numbers meant they may need to be revised down in coming months.

The official data released today shows total employment rose 71,500 to 11.628 million in February, seasonally adjusted.

But most of the rise was in part-time positions, which were up 53,700 to 3.511 million while full-time jobs rose only 17,800 to 8.117 million.

Economists had been tipping total employment would rise by only 8000 in February with the unemployment rate ticking up to 5.5 per cent.

ANZ head of Australian economics Justin Fabo said this was a "very strange labour force report'' as despite concerns about the economy slowing the number of employed people has risen by the largest amount since July 2000.

"At face value, the employment numbers look very odd and we expect some significant pullback next month,'' Mr Fabo said.

The strength of the data was boosted by a sharp lift in the participation rate from 65 per cent to 65.3 per cent after a period of workers exiting the jobs market.

CommSec chief economist Craig James said it is clear that while a small number of listed companies reporting job cuts are dominating the headlines rather that a raft of small and medium-sized firms that are getting on with business and hiring new workers.

"The latest figures show that businesses are still more inclined to hire part-time workers and contract staff than take on full-time staff,'' he said. "But that is likely to change over 2013 as firms get more confident about the outlook for their businesses and about the broader economy. The people getting jobs probably prefer full-time work to part-time work, but it still means there is extra spending power for retailers to tap.''

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US 'sequester' cuts to hit global growth

Barack Obama. Picture: File

THE broad US "sequester" spending cuts that take effect beginning Friday will slow growth in the world's biggest economy and hit the global economy, the International Monetary Fund said Thursday.

"There will be an impact on global growth," IMF spokesman Bill Murray said. "We'll have to reevaluate our growth forecast for the United States and also our other forecasts."

Murray emphasized that the $85 billion in US spending cuts, known as sequestration, would be phased in over seven months. The sequestration also includes $109 billion in cuts over the following eight years.

The drastic cuts were mandated after Democrats and Republicans failed to reach an agreement on budget deficit reduction.

"It's really going to affect US growth," Murray said. "We have to see how deeply the spending cuts are implemented."

The IMF's current US growth forecast for 2013 is 2.0 percent and economists expect that full implementation of the sequestration will subtract at least 0.5 percentage points from growth.

IMF's revised growth forecasts will be reported in April in its twice-yearly World Economic Outlook report.

As for the sequester's impact on global growth, Murray said, "The countries most affected will be countries that have active trade relations with the United States."

US lawmakers still have a few hours to strike a deal that would avert the spending cuts that begin Friday, but that appeared unlikely.

"Everybody assumes sequestration will take effect," Murray said.

The across-the-board spending cuts were expected to batter the country's slow recovery from the severe recession that ended in mid-2009.

According to Commerce Department data published Thursday, the US economy stalled in the 2012 fourth quarter, growing a mere 0.1 percent pace -- though better than the previous estimate of a slight contraction.

But overall growth in 2012 was 2.2 percent.

Scott Hoyt of Moody's Analytics said the scant growth in the fourth quarter "highlights the impact the budget negotiations in Washington and weakness of overseas economies have had on the US economy."

The Congressional Budget Office forecasts US gross domestic product growth will slow to just 1.4 percent in 2013 if the sequester takes place in full.

It said that was too slow to spur businesses to hire additional workers, keeping the unemployment rate near 8.0 percent.

Federal Reserve Chairman Ben Bernanke, in testimony to Congress Tuesday and Wednesday, warned that economic growth remained uneven and could be further hurt by the government's steep budget cuts.

"The Congress and the administration should consider replacing the sharp, front-loaded spending cuts required by the sequestration with policies that reduce the federal deficit more gradually," he said.

Bernanke reaffirmed that the Fed's extraordinary $85 billion a month bond-purchase program, aimed at holding down long-term interest rates and encouraging investment, was still merited.

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