... consistent with the the national approach to economic, environmental and social stewardship.

National Economic Outlook

Australia’s national economic outlook remains cautiously optimistic. The 2011-12 national accounts released by the Australian Bureau of Statistics (ABS) have shown a 3.4 per cent increase in GDP from 2010-111.

Terms of trade

Internationally, the national accounts are less positive with Australia’s terms of trade declining by 4 per cent (albeit of a high base) in seasonally adjusted terms in the September quarter.  The decline was considerably larger than the 1.4 per cent drop experienced in the June quarter.  The total seasonally adjusted decline in the terms of trade for September 2011 to September 2012 was 13.7 per cent2.  At least some of the decline can be attributed to a drop in the price of the major bulk exports of iron ore and coal, as supply has begun to catch up with demand in response to previous price increases.  Also contributing to the decline in Australia’s terms of trade has been the ongoing global economic downturn.  The continuing Euro-zone crisis and shallow US recovery coupled with a more protracted than expected slowdown in China have placed downward pressure on demand for Australia’s mineral exports.

Despite this Australia’s mineral industry remains strong and contributes significantly to the national economy.  The mineral resources industry accounts for half of the nation’s exports, and nearly a tenth of GDP.  Considering the structural adjustment that is occurring within Australia’s traditional export industries, most notably manufacturing, the contribution of the minerals industry during and post the global financial crisis (GFC) has been invaluable in securing the nation’s prosperity.

Business Conditions

National Australia Bank’s (NAB) quarterly and monthly Business Surveys have continued to record weak confidence levels throughout 20123. Business conditions continued to decline throughout 2012 with softening GDP growth and declining confidence levels seeing NAB’s December Survey record the lowest level of business conditions since May 2009.  NAB is predicting the ongoing decline of business confidence is having a material impact on demand conditions in the economy.  Over the September and December quarters negative levels of business confidence were reported from all industries.  Mining has declined from being a beacon of optimism to one of the most pessimistic industries due to declining commodity prices and shallow growth in China.  Confidence also declined in manufacturing and recreation & personal services in the quarter.  In transport & utilities and wholesale sectors, confidence improved solidly.  Interest rate cuts by the Reserve Bank of Australia in 2011-12 have not yet been effective in offsetting the ongoing and heightened concerns about global economic uncertainty.

On a state-by-state basis, business confidence recordings have been poor across the board.  There was however a strong improvement recorded in South Australia and a smaller improvement in Western Australia, although that state was coming from a position of strength.  Confidence levels declined in New South Wales and Queensland, while Victoria recorded the lowest levels among the mainland states.

Employment

Continued uncertainty in the global economy including the ongoing Euro-zone sovereign debt crisis, a sluggish and shallow US recovery and slowing of growth in China are contributing to low business and consumer confidence4. This in turn is keeping demand across the economy low and employment conditions soft.  Labour market conditions have softened with large cuts to the public service in a number of jurisdictions, an ongoing decline in building and construction jobs, and continuing pressure on manufacturing and non-resource exports because of the high Australian dollar.  Despite this, the unemployment rate remained steady and relatively low (compared to many advanced economies) at 5.45 per cent as at January 2013.

Looking ahead

Australia’s minerals industry is beginning to face stiffer international competition than at any time since the beginning of the current resource cycle6. This competition has come from two directions.  Firstly, many developing nations are experiencing newfound levels of social, political and economic stability following decades of instability, which followed decolonisation and the Cold War.  With stability comes market reforms and many of these states are beginning to open their economies up to foreign investment.  These states offer low costs and high resource potential thanks to a lack of previous industrial scale mining.  These nations are predominantly in Africa, South America and Asia.  Secondly, significant international competition is also emerging from other developed nations.  These nations have mature resources sectors that have been increasing productivity and output levels through policy reform, resource discoveries, and aggressively promoting investment.

To remain not only competitive, but at the forefront of the global minerals economy, improvements to cut costs and increase productivity are needed across the board.

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1 ABS – 5206.0 – Australian National Accounts: National Income, Expenditure and Product, Sept 2012
2 ABS – 5206.0.
3 National Australia Bank (NAB), Business Research and Insights, Business Survey http://business.nab.com.au/tag/business-survey/ September Quarter 2012, Monthly October 2012 surveys, and December Quarter 2012.
4 Ibid – NAB.
5 ABS – 6202.0 – Labour Force, Australia, Sep 2012
6 Port Jackson Partners (2012), Opportunity at risk: Regaining our competitive edge in minerals resources, Minerals Council of Australia. http://www.minerals.org.au/file_upload/files/presentations/mca_opportunity_at_risk_FINAL.pdf