The mining boom is set to end earlier than anticipated but activity in building and construction in Australia is expected to pick up, industry research firm BIS Shrapnel says in its latest report on the Australian economy.
In its Long Term Forecast Update, BIS says it expects the overall Australian economy to grow by around three per cent over the next few years.
For now, however, growth will remain uneven throughout the economy as mining accounts for a disproportionate share of growth while firms in many sectors outside of resources continue to pare back on investment and focus on cost reduction.
Beginning in 2014, however, that balance will change as investment in mining projects peaks and non-mining investment stabilises. Beyond that, non-mining investment is expected to start to pick up and take over as an engine of growth.
While BIS has always maintained that resource sector investment will peak around the middle of the decade, its latest forecast comes amid growing pessimism over how long the mining boom will run. Such sentiments were reinforced in recent days by moves on the part of BHP Billiton to mothball its Olympic Dam expansion plans and abandon its controversial Yeelirrie uranium project in Western Australia.
On the positive side, however, BIS has singled out property, building and construction as a key area in which a recovery is expected.
The forecasting firm says the property industry will benefit from a strengthening in the broader economy, which should boost service industries.
Building and construction, which BIS names as one of a number of ‘domestically-focused industries that have been held back by low confidence and weak demand, rather than the weak dollar,’ should now join stronger-performing sectors such as wholesale trade and the parts of the business and financial services industry which have benefited from strong mining activity in generating growth.
BIS Shrapnel chief economist Dr. Frank Gelber says home building activity should benefit from a combination of lower interest rates, population growth and shortages of stock, while an increase in private sector investment should help pick up the slack left from the end of public sector stimulus measures.
“BIS Shrapnel expects the building industry to gradually improve, supported by a recovery in dwellings building from late this year,” Gelber says. “Next year, non-dwelling building should also pick up as supply tightens after many years in the doldrums. This increase in private sector building will help offset the decline in public sector building that is occurring now that the Building the Education Revolution program is nearly complete.”
Gelber adds that mining investment is still currently on the rise, which demonstrates that “overall investment in the construction industry should grow strongly over the next year, but employment will remain subdued.”
In terms of other sectors, BIS expects continued strong activity in wholesale trade, strong growth in telecommunications, a recovery in retail and a stabilisation in education.
BIS adds, however, that the strong dollar will continue to weigh on manufacturing, while subdued conditions are expected to persist going forward in public administration and safety, utilities, and administration and support services.