Australia’s mining boom will slow more sharply than expected and could be over within two years due to easing demand from China and falling prices, a leading economic forecaster warned yesterday.
Mining exports to industrializing Asian nations, chiefly China, helped Australia weather the global crisis without entering recession and prompted Canberra to vow a budget surplus for the fiscal year starting on July 1.
However, Australia’s leading private-sector budget forecaster Deloitte Access Economics said the surplus plans could be undone as China slows and with coal and iron ore prices dropping.
Its quarterly business outlook for last month said while the mining sector continued to drive economic growth and provide a buffer from problems in Europe and China, it would not last forever.
“The strong bit of Australia’s two-speed economy won’t stay strong for more than another two years or so,” Deloitte said, referring to the mining boom.
In an interview with ABC radio, Deloitte director Chris Richardson said demand in key markets for Australian minerals was slowing.
“China is slowing, India is slowing, Brazil is slowing. And you’re seeing those prices come off at the same time as costs have risen in Australia in recent years,” he said.
The government insisted a decline in mineral prices had been factored into the budget as well as a drop in capital gains tax revenue caused by a stock market still impacted by the global financial crisis.
“The budget will return to surplus,” Australian Prime Minister Julia Gillard said.
While robust mining exports have driven strong growth in the country, the associated lift to the Australian dollar has hit other industries hard, and Australian Shadow Treasurer Joe Hockey said the government was too reliant on mining.
“The government has built a budget that is wholly captive to the mining boom and the taxes to be collected from mining taxes,” he told reporters. “Now it’s apparent the budget is unraveling because it was built on smoke and mirrors.”
Despite the warning, Richardson said the Australian economy remained a global standout.
“We judge ourselves against our own experience and Australia has done so well for so long that, you know, we want to keep doing better and that’s a tough yardstick,” he said.
Australia’s economy expanded by 3.2 percent in the year to last month.