Halfway down the mining investment cliff
NAB expects mining investment to fall around 70pc from current levels over the next three years.
Australia is only halfway through the mining investment downturn, with 50,000 jobs tipped to go as a boom led by the LNG sector winds down, according to National Australia Bank.
In a note released today, the bank said analysis of the current project pipeline together with the national accounts points to significant near-term pain ahead.
“Our models suggest that mining investment is likely to fall by around 70 per cent from its current level over the next three years – implying that we are currently just over halfway down the mining investment ‘cliff’,” the report said.
“Given our expectations for economic growth over that period, mining GFCF (gross fixed capital formation) is expected to drop to just 1.25 per cent of GDP, which is toward the lower end of pre-boom historical levels.”
NAB added there was some “upside” available if legal impediments to some projects were removed and if commodity prices recovered.
The commentary follows a period of readjustment in the local economy that has seen the resources sector lose its place as the engine of growth.
At its recent peak in 2011 and 2012, mining investment contributed two-thirds of the nation’s economic growth.
With the unwinding of the boom, however, job losses are threatening to have a significant impact on the economy.
“In 2015, stronger labour requirements on the back of the completion/near-completion of several major LNG mining projects such as Pluto, Queensland Curtis LNG (QCLNG) and Gladstone LNG (GLNG) … appear to have propped up mining employment,” NAB said.
“This suggests further downside risks to mining employment once the construction phase of these ‘lumpy’ projects wind down.”
Queensland and Western Australia are the two states in the firing line, although the latter has more to lose without a rapid recovery in the fortunes of the sector, according to NAB.
“Overall, we expect further net falls in mining employment in both states as the reduction in construction jobs outpaces the increase in operational jobs,” the report read.
“Most of the job cuts in the mining sector going forward are likely to stem from WA for a number of reasons:
“(1) WA’s mining investment and employment cycles are currently less progressed than Queensland,
“(2) WA accounts for a larger share of total investment and employment in the country, and
“(3) the labour intensity of commodity projects in their operational phase in WA is lower than in Queensland.”
In total, NAB expects a further 50,000 jobs to be shed from the broad mining sector over the next two-and-a-half years, with a 65,000 drop in construction jobs unable to be offset by a lift in operational jobs of 15,000.
Employment in the sector is expected to gradually recover from 2019.
Despite this, NAB expects the local unemployment rate to drift lower over the next 18 months as the non-mining sector picks up the slack.
“If our growth figures are correct, the further mining job loss of around 50,000 predicted should be offset by other jobs created within the domestic labour market.”
