Australia’s service sector is the necessary salve for the continued painful collapse of the mining investment boom, which looks like it is only halfway through its adjustment.
That’s the message in new research from the NAB’s economics team.
The paper prepared by Riki Polygenis, NAB’s head of Australian economics and colleagues Vyanne Lai, and James Glenn says that “our models suggest that mining investment is likely to fall by around 70% from its current level over the next 3 years – implying that we are currently just over half-way down the mining investment cliff”.
To put that in context the banks says “as a percentage of GDP, mining capex has fallen from 8% GDP at its peak to around 4.25% currently and expected to fall to 1.5% ofGDP by late 2018”.
That collapse in investment, and the change from the building phase of the boom to the production phase means that while the NAB estimates “46k mining jobs were shed between the peak in 2012-13 and 2014-15” another 50,000 jobs will be cut as the investment boom winds down.
These additional job losses will “cause significant headwinds, especially in geographically affected regions and in certain specialised skill groups, especially Western Australia,” the NAB says.
But, because the rest of the economy is relatively strong the NAB says the nation can easily withstand these losses.
“We are forecasting 18,000 additional jobs to be created per month over the next few years, with the unemployment rate to track down towards 5½% by mid-2017 before inching up thereafter,” Polygenis and her colleagues say.
She added that jobs growth has “been particularly concentrated in services sectors which are more labour intensive and in the eastern states, and this pattern is likely to continue”.
That’s meant the Australian economy, in aggregate, has weathered the effects of the mining boom relatively well and is likely to continue to do so the NAB says.