An Australian minister has declared that the country’s mining boom has ended with implications for the Australian Dollar and economy.
Resource minister Martin Ferguson said “You’ve got to understand, the resources boom is over,” Mr Ferguson said the sector had done well and attracted a lot of investment making it the “the envy of the world”. However, he added that trading conditions had become tougher in the last six to 12 months. According to the Australian Financial Review, his words sent a “shiver” through the halls of parliament and the “Twittersphere” went “into overdrive”.
His comments follow the announcement that BHP Billiton one of the nation’s largest mining companies shelved its $20 billion Olympic Dam mine expansion plans in Southern Australia and announced it has seen a 35% fall in yearly profits. His comments combined with BHP’s news saw politicians and investors argue with one another over the real state of the mining sector. The Olympic Dam project, which had been due for approval by December 2012, would have created 25,000 jobs, according to the South Australian government.
The Australian government went into damage control mode following Fergusons speech seeing a string of ministers, including the finance minister and treasurer take to the airwaves to disagree with the comments. Even Prime Minister Julia Gillard came out to say that there was no disagreement at all—everyone accepted that the “commodity price” boom was over, but not the “investment boom”.
Finance minister Penny Wong said; “We still have a lot of investment coming in to this country, about half a trillion dollars in the pipeline and more than half of that at the advanced stage, I think the mining boom still has a long way to run. But what I would say is that the government has always assumed that the terms of trade would step down over time, that’s what our budget is predicated on. I think Mr Ferguson was referring to when the terms of trade peaked, and that’s factored into the Government’s budget.”
Australia’s mining boom has been fuelled by Chinese-led demand for raw materials such as coal, iron ore and other resources. As a result of the huge demand and sheer number of exports being sent to China, Australia has managed to coast through the global l financial crisis and has not slipped into recession. The resources boom fuelled what has been dubbed a two-speed economy, which has pumped up the Australian dollar and exacerbated the pain felt in manufacturing sectors and retail in Australia’s most populous states.
Recent economic data out of China shows that the Asian powerhouse’s economy is weakening and as a result demand for Australian goods has waned. The weak demand has hit commodity prices, including iron ore and sent them to their lowest levels since December 2009.
Diffusing the situation somewhat are remarks made by Reserve Bank governor Glenn Stevens who waded into the debate saying that he sees no sign of the country’s mining boom coming to an end, he also signaled that interest rates would stay on hold unless there is a drastic negative change to the economy.
“I probably describe myself as cautiously optimistic. I have tried to get people to see the glass half full rather than half empty, because I do think we risk talking ourselves into more gloom than we really should,” he told lawmakers in his twice-yearly parliamentary testimony in Canberra.
Overall then it seems that the mining boom is set to continue but at a more sedate pace than previously seen. Of course if China’s economy takes a nosedive then Australia could face a very serious crash. One thing is for certain, ministers like Martin Ferguson should be careful about what they say as the slightest sign of negativity could have dire impacts to the Australian Dollar and perhaps the Aussie economy as a whole, after all market confidence in anything is pretty tenuous right now.
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