Australia’s mining companies are set to play a greater role in the nation’s economy and talk of the industry’s demise are “greatly exaggerated,” Secretary to the Treasury Martin Parkinson said.
“We expect strong investment this financial year and next,” Parkinson, the Treasury’s top bureaucrat, said in a speech today in Perth, the capital of Western Australia state. “Only just beginning is the strong rise in extraction and export volumes stemming from that investment.”
He rejected suggestions the currency, which has rebounded 70 percent from a low reached during the global financial crisis, should be weakened to help manufacturers and services industries. “The alternative -- which would be allowing the real exchange rate appreciation to be driven by higher domestic inflation -- is likely to be more costly for the economy,” Parkinson said.
Australia’s central bank resumed cutting its benchmark interest rate this week to revive demand outside of the resource boom that it said is likely to crest next year at a lower level than previously expected. Governor Glenn Stevens lowered the overnight cash-rate target by a quarter percentage point to 3.25 percent on Oct. 2, ending a three-meeting pause.
“The peak in resource investment is likely to occur next year, and may be at a lower level than earlier expected,” Stevens said in a statement accompanying the decision. “As this peak approaches it will be important that the forecast strengthening in some other components of demand starts to occur.”
Concern about the mining boom’s longevity was fueled by a plunge in commodity prices as growth slows in China, Australia’s biggest trading partner. Prices of Australia’s key export, iron ore, rebounded about 20 percent since reaching a three-year low on Sept. 5 after China announced spending on new subways and roads.
“Rumors of the death of the mining sector have been greatly exaggerated,” Parkinson said. “Instead of the boom-and-bust cycle, what we will see ultimately is mining becoming a much larger share of a reshaped economy. The mining sector is expected to rise from 5 percent of gross value added in the early 2000s, to in the order of 10-12 percent in the decades to come.”
Parkinson was upbeat about the outlook for Asia based on the expansion of the region’s middle class and its growing role in the global economy as Europe’s influence wanes under a debt-and-deficit crisis.
“The number of middle-class consumers in the Asia-Pacific region is expected to grow from half a billion in 2009 to 3.2 billion by 2030,” Parkinson said. “Consequently, by 2030, it is estimated that just under two-thirds of spending by the world’s middle class will come from the Asia Pacific region, compared to around only one-quarter today.”