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Australia's resource boom to decline?

July 12, 2012 at 1:46 PM   |   Comments

MELBOURNE, July 12 (UPI) -- Australia should prepare for a downslide in the country's resource boom, the country's leading economists say.

Speaking at an economic conference in Melbourne Wednesday, Australian economist Max Corden, an expert in the hollowing out of economies with high currencies, urged the government to take steps to save more during the current resources boom.

"If you know there is going to be a big investment boom coming in the minerals sector, this is not the time to be having a big investment boom in the rest of the economy, whether private or public," Corden was quoted by The Age newspaper as saying.

Noting there's a "natural tendency" to think booms would continue forever, he stressed it is likely commodity prices would continue to fall.

National Australia Bank, in its latest business survey, said although mining was stimulating significant growth in Western Australia and far outpacing other industries, confidence within the sector was falling.

Australia's Minerals and Resources Rent tax, which applies to companies that mine iron ore, coal and petroleum and have an annual profit of more than $75 million, went into effect July 1. The government expects to earn $13.4 billion in the next three years from the tax.

After iron ore, coal is Australia's second most important export earner, with China the second largest market after Japan.

But Ross Garnaut, professor of economics at the Australian National University who served as Australia's ambassador to China from 1985 to 1988, warned China's demand for Australian coal could fall.

Coal use in China "has hardly increased at all" despite the growth in the economy, Garnaut said. "That is contributing to a surplus of coal in China and internationally, and putting big downward pressure on prices, with implications for Australia,'' he said, the Sydney Morning Herald reports.

Garnaut said Australia's economy was already "a long way" into the resources boom.

"We've got a lot of growth in the economy coming from a record level of business investment, which is overwhelmingly (in) the resources sector. Even if that stayed that high, it ceases to be the source of growth that it has been," Garnaut said.

Separately, a report on Australia's salaries by global management consulting firm Hay Group released this week says the mining boom in Western Australia was further widening the pay gap with the rest of the market.

Hay Group predicts a 6.3 percent salary increase for the resources sector, compared with 4 percent for the rest of Australian workers.

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