And the smarties told you the resources boom was finito. Now it's being
given most of the credit for this week's news that the economy grew by a
rip-roaring 1.1 per cent in the March quarter and by an above-trend 3.5
per cent over the year to March.
The boom is far from finished. It
will be adding to - and subtracting from - the growth in real gross
domestic product for several years yet.
Media reports that "the
mining industry accounted for around 80 per cent of growth in GDP in the
March quarter" come from no lesser authority than the Bureau of
Statistics itself. Sorry to say it, but this is true from a certain
perspective, but essentially misleading.
It comes from the
estimate that the mining industry's volume (quantity) of production grew
by an amazing 8.6 per cent during the quarter, which means it made a
contribution of 0.9 percentage points to the overall growth in real GDP
of 1.1 per cent.
Almost all that increased production would have
been exported. So it explains most of the growth of 4.8 per cent in the
volume of total exports during the quarter, which itself made a
contribution of 1.1 percentage points to the overall real growth in real
GDP of 1.1 per cent.
But that's not the only way the mining
sector affected the economy's growth during the quarter. Overall,
business investment spending fell by about 1 per cent during the
quarter. But Kieran Davies, of Barclays bank, estimates this was
composed of a fall of about 8 per cent in mining investment, plus a rise
of about 3 per cent in non-mining business investment.
And that's
not all. The accounts show that the volume of imports fell by 1.4 per
cent in the quarter which, since imports subtract from gross domestic
product-ion, means their fall made a positive contribution to the
overall growth in real GDP of 0.3 percentage points.
But if the economy is roaring along, why on earth would imports be falling?
Because
such a high proportion - about half - of spending on new mines and
natural gas facilities goes on imported capital equipment. And if mining
investment is falling, imports of mining equipment must be, too.
Complicated,
ain't it. Perhaps this will help. The resources boom, which began a
decade ago, has had three stages: first, the huge rise in the prices we
get for our exports of coal and iron ore; second, the massive investment
in additional mining production capacity; third, a big increase in the
volume of our exports of minerals and energy as the new mines come on
line.
We're still being affected by all three of those stages.
Export prices peaked in mid-2011 and have since fallen a fair way,
though they remain a lot higher than they were before the boom started.
Prices fell further during the quarter and, though this doesn't affect
real GDP directly, it does represent a loss of real income to the
economy, which must dampen demand indirectly.
Mining investment
spending peaked in 2012 and has since started falling. It fell further
during the quarter and this subtracted from growth, though less so when
you take account of the related fall in imports of equipment.
Since
so many mining construction projects are finishing, mining production
is now growing strongly. It grew particularly strongly in the quarter
because we didn't have any floods or cyclones to disrupt it. But though
mining production has a lot further to grow, it can't keep growing as
fast as it did this quarter.
Putting all that together, the mining
sector's net contribution to growth during the quarter accounts for not
80 per cent of the growth during the quarter, but just under half,
meaning the "non-mining sector" contributed just over half.
And
that's good news. Why? Because this quarter's mining performance was the
exception to the new rule. Mining made a net positive contribution
because mining investment didn't fall as much as it could have, while
mineral exports grew by a lot more than could have been expected. And
neither of those two things can last.
The new general rule is that mining has been and will continue to make a net negative contribution to overall growth.
That's
because the fall in mining investment spending generally outweighs the
rise in mineral exports, even after you allow for the fall in
mining-related imports.
The good news is that just over half the
growth didn't come from mining. This is good news because for at least a
year we've been worried about the economy "rebalancing", making the
"transition" from mining-led to broader-based growth.
And even
though the bureau did its (inadvertent) best to hide the fact from us,
its accounts actually show that non-mining growth is at last taking
hold.
Consumer spending grew by a not-so-wonderful 0.5 per cent during the quarter, but by an almost-OK 2.8 per cent over the year.
Home
building grew by a rapid 4.7 per cent in the quarter, the first really
strong quarter. But best of all, by Davies' estimate non-mining business
investment grew by about 3 per cent.
Economists usually can't see
the future with any clarity, but the mining investment boom is
different. Because it consists of a relative small number of hugely
expensive projects, it isn't hard to see how close they are to finishing
and whether there are many new projects getting going.
They are,
and there aren't. The macro managers have known for ages that mining
will give the economy a big (net) dump in 2014-15 and 2015-16. That's
why getting the non-mining economy going is so vital.
It's why the
Reserve Bank has keep interest rates so low and won't start raising
them until it knows we're out of the woods. It's also why, despite all
his budget cuts, Joe Hockey made sure they don't do much to dampen
demand until 2017-18.
