Australia faces uncertain economic future

map of Australia

A recent survey of the business investment in Australia is showing that the economic future of the country likely to be not very strong. The slowdown in China and the falling commodity prices have forced many mining companies in Australia to focus on cutting prices and winding down capital investments. A survey among 11 economists shows that they expect that the business investment will not increase during the second quarter. The mining component of the economy is expected to weaken.

“We expect a dose of reality to return to the official capital expenditure report,” JPMorgan said in a note to clients, adding that forecasts for investment over the next year should see “a material downgrade.” The survey will be published Thursday. The slowdown in mining investment is expected to extend over years, not months. With major gas projects set for completion in 2015, the risk is that the fall in resources investment will accelerate with time. Some economists warn of an investment “cliff.”

Some experts have raised concerns that other growth contributors such as consumer spending and house construction will not rise fast enough in order to compensate the slowdown in mining. In addition to that, the Reserve Bank of Australia has already downgraded the economic outlook for the rest of the year based on feedback from mining companies. At the same time, non-mining investments are expected to stay low. There will be only modest growth in 2014.

The weakening Australian dollar could do a lot to boost the country’s economy. Trading around US$0.9000 currently, it remains high relative to its long-term levels and is a headwind to economic growth. Australia is set for a period of at least a year of weak growth.

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