BHP Billiton’s decision to shelve two high profile projects has not changed the central bank’s upbeat view about the economic outlook.
Reserve Bank of Australia (RBA) governor Glenn Stevens told a parliamentary committee on Friday that the central bank has for a while been forecasting an end to the mining investment boom in the next couple of years.
“I don’t think we have seen any evidence lately that causes us to change the timing of that (forecast) in a material fashion to what we have had for a while,” he told the House of Representative’s economics committee in Canberra.
BHP Billiton announced this week that it was not going ahead with a $30 billion expansion of the Olympic Dam in South Australia and a $20 billion project in Port Hedland, Western Australia.
Mr Stevens said there were a vast number of possible projects in the investment pipeline that shouldn’t be done because of already rising cost pressures on resources companies.
Assistant governor for economics Christopher Kent told the hearing the resource sector was concerned about skills availability, rising wages and a high exchange rate which forces costs up.
“It is just the difficulty of getting the skilled labour and getting on with projects when there are so many projects to be done in a relatively short space of time,” he said.
Resource Minister Martin Ferguson declared the mining boom “over” on Thursday, but some mining companies don’t agree.
“We’re in a downturn relative to where we’ve been in the last five to six years but I think the long-term story for resources remains very strong,” Whitehaven Coal chief executive Tony Haggarty said in a teleconference on Friday.
Mr Stevens said in his prepared statement at the start of his three-hour grilling that the economy appeared to have been recording reasonable overall growth, relatively low unemployment and low inflation.
“Looking ahead, the peak of the resource investment boom as share of GDP – the highest such peak in at least a century – will occur within the next year or two,” he said.
“After that the rate of resource investment is likely to decline, while the export shipments of the resources themselves will pick up.”
By then the RBA might expect some other sectors that have been weak of late, like residential and non-residential construction, might be starting to pick up.
“Overall, growth is forecast still to be close to trend, albeit with a different composition from that seen in the past year or two, and inflation consistent with the target,” he said.
Mr Stevens said the terms of trade had declined 10 per cent from their historic peak, “and they will decline further”.
“That has always been assumed … certainly by us,” he said, and he assumed Treasury had as well.
Treasurer Wayne Swan confirmed to reporters in Brisbane that the government had already budgeted for commodity prices to come off.
“The fact is we have reached the peak of our terms of trade and we are forecasting for terms of trade to come down over time. That is already in our figuring.”
