All signs are pointing to a slowdown in the resources sector. Once again, the strength of the industry depends on Chinese economic growth – and with a correction in the country’s manufacturing sector now expected to occur soon, the mining industry will feel an impact.
According to a recent survey of Reuters economists, the median GDP growth forecast is now at 9%, down from 9.2% in an April 2010 poll. Inflation is also set to fall from 3.4% to 3.1%. Projected inflation next year has eased, too, to 3.1% from 3.4%.
“Fixed investment is cooling. Public spending slowed in the first half and private residential spending will cool in the second half,” China economist for Royal Bank of Scotland, Ben Simpfendorfer, told Reuters. “It’s really a correction in the manufacturing sector, which was running too hot.”
Recent forecasts from the Australian Bureau of Agricultural and Resource Economics and Sciences show the value of commodity exports will be around $211.1 billion in 2010-11, an increase of 23.4% from the previous year.
This sounds good, but it’s actually a downgrade of nearly $4 billion because of slower growth in commodity prices.
Iron ore spot prices will fall from $US134 in 2010 to $US105 per tonne in 2011. Coal prices are also set to drop to $US200 from $US209.
Wheat exports are also set to take a big hit, with production to come at $5.7 billion in 2010/11 rather than the $6.7 billion previously forecast, thanks to flood damage in the eastern states.
The Australian dollar will remain strong over the course of the year, providing business with some certainty, but there’s no disguising the fact that resources will be in lower demand this year.
Professional services suffered during 2010 thanks to the high Australian dollar and rising interest rates, and all signs point to 2011 encountering a similar level of difficulty.
Ultimately, the services sector is tied to consumer confidence – when people have money, they’ll start spending. But right now, that means sub-sectors exposed to the high-dollar and interest rates, such as property and finance, are hurting.
But the good news is that this weakness is only set to last until about mid-year. Commonwealth Bank senior economist John Peters said last month that while retail sales remain low, higher consumer confidence will keep professional services looking healthy after June.
“Indeed, the early December release of third quarter GDP data revealed the household savings ratio surging to 10.2%. A continuing pickup in local growth, an associated further firming in jobs markets and an unemployment rate dipping under 5%, together with solidly rising incomes and wages, are likely to entice consumers to spend more in 2011.”
And employers are also growing more confident. According to the latest Manpower survey the finance, insurance and real estate industries have an employment outlook of 19%, up four from 2010, and the services sector is up by 28% – up by five percentage points from 2010.
The transport and logistics industries may be reaching the end of their reprieve from higher oil prices in 2011 – but there are plenty of other reasons why operators should be gearing up for a good year.
The higher Australian dollar may be sending more travellers overseas but airlines will benefit from the higher volumes, and travel agents will be reaping the benefits form that increased demand as well. And some transport operators will benefit from the influx of tourists from south-east Asia.
Demand for natural resources will also keep transport operators in the mining industry strong, although some may have had a shaky start to the year due to the Queensland floods. Businesses in the north-east and western parts of the country will be in high demand, and some larger mining giants could be on the prowl for transport companies in order to consolidate their production lines.
Population growth also means the use of public transport will continue to grow.
And according to the latest Manpower survey, employers are anticipating this demand – hiring prospects have increased by eight percentage points over the previous quarter and by six percentage points over the year.
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