10 Nov 2012

Weak mining investment hits Australian economic growth

1:51 pm on 10 November 2012

Weaker commodity prices and a high exchange rate have dealt a double whammy to Australia's mining sector, making companies less willing to invest and driving expectations for domestic growth lower.

The Reserve Bank of Australia (RBA) said on Friday that weaker spending in the resources sector had prompted it to drop forecast growth for gross domestic product (GDP) for 2013 to below 2.75%, compared to a forecast of 3.0% it made in August.

The RBA said recent falls in bulk commodity prices and the high Australian dollar had put pressure on the industry, making mining companies less likely to go ahead with new projects, and slow activity on others.

"Lower prices have reduced mining companies' cash flows and reduced their appetite for investment spending," it said.

Iron ore and coal mining had been hit particularly hard, as lower expectations for global growth suggested weaker demand in the near future.

However mining investment in the coming year is still expected to rise, underpinned by construction on a number of very large LNG projects.

The pace of investment would nonetheless be slower than it had been during the 2011/12 period, and would peak during 2013.