Performance of non-mining sector 'disappointing': BIS

14/09/2012 - One of Australia's leading economic forecasters says it is shocked and disappointed at how poorly Australia's non-mining sector is performing at a time it should be offsetting a slowdown in the resources sector. Greg Roberts

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BIS Shrapnel recently predicted in a report that mining investment would peak in 2014 but other sectors would then take over as the primary drivers of growth.

However the pace of recovery in the non-mining sector was a worry, with companies in survival mode and economic output and profit growth compared to the resources industry the top problems, BIS Shrapnel's chief economist Dr Frank Gelber told a business conference in Melbourne on Thursday.

The industries in the most trouble are manufacturing, information media and telecommunications, which are contracting in size and posting losses.

"By now we should've seen a spread of broadening investment beyond the mining sector because we stopped investing in non-mining areas when the GFC hit," Dr Gelber said.

"It's mostly bad, if you take out mining, the rest of the economy is weak.

"By far the majority of businesses in Australia are doing it tough, hence the loss of confidence and pessimistic bias we see around the place.

"People won't invest unless its necessary and won't spend any money until its necessary and it becomes self fulfilling with all the people that service that area weaker too and it perpetuates itself until we run into capacity constraints and have to invest again."

Dr Gelber said he saw that as a silver lining because BIS's figures showed capacity utilisation in non-mining sectors such as construction, transport and retail still well below the pre-global financial crisis peaks of 2007-08.

"We know that if we're not investing enough to cater for even moderate growth the eventual tightening capacity means we're going to have to start investing again in the non-mining sectors," he said.

"The question is when?

"It has been slow to come through, and we were a little bit disappointed about how slow but when we started to look a bit more closely at the capacity utilisation figures, it is pretty low."

Dr Gelber said property development would kickstart a recovery, with two interest rate cuts possible in the near term.

Sectors that were doing well included health services, wholesale trade and financial services.

Trade-exposed industries were struggling because of the high dollar and Dr Gelber said for some to prosper, the Australia dollar would need to drop to 75 US cents, which was unlikely for now.

The Victorian Government came in for particular criticism, for cutting investment and capital expenditure when its economic activity was among the nation's weakest along with South Australia.

He said BIS saw no evidence to worry about a sharp collapse in commodity prices or demand out of Asia, and for that reason the good Australian resources projects in the pipeline would go ahead.

The second half of the current decade was still uncertain though, in relation to some larger mining projects planned.

Source: AAP

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Have your say...

tom m | 14/09/2012 10:28 1

Blame our major shops. Thye want to pay nothing and have huge mark ups. They force local manufacturers to go offshore. Plus audtralians in general are not local supportes and dont want to pay the prices for goods made here at the labour rates thye get paid. Labour has screwe us over at state and fereral lvels with $500 billion in debt and dont think anythign is wrong with that when we got so little for it. That debt will haunt us for 1/2 to a full generation. Please wake up at the next election.

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