Australia’s transition from mining to a service driven economy continues
The Australian economy is showing signs of responding to commodity price weakness by rebalancing from mining to the services sector and to activities that are driven by domestic demand.
The commodity price appreciation over the quarter has cushioned this transition, but we expect further commodity price weakness in 2016. If significant falls in coal and iron ore prices were to materialise we anticipate that there would be a further decrease in the ability to predict commodity company earnings.
It is vital that capital expenditure in the non-mining sectors that support activity and jobs counterbalances the sharp decline in mining investment. The latest capital expenditure survey highlighted mixed data, although total year-on-year new capital expenditure improved slightly to -16 per cent from -20 per cent, which indicates signs of stabilisation.
Looking to the future, we expect an increase in capital expenditure during 2017 as business lending increases and the Australian dollar weakens.