Economist Predicts Likely Reversal of Investment Boom in Australia
The dollar is down a bit and demands for commodities have generally eased down, according to major mining players, prompting many economists to suggest that Australia's surge of investments had reached the inevitable limits.
The current investment pipeline accounts for some $912 billion worth of projects but according to Westpac chief currency strategist Robert Rennie, investors were now looking at likely breaking point, which means the next economic phase will see the gradual sinking of investment overtures in the periods ahead.
In an interview with BusinessDay, Mr Rennie predicted that emerging indicators will convince the market to shift gears based on the notion that "$912 billion is (not) going to get any bigger. In fact, I think it's going to start getting smaller."
Soon enough, Australia's biggest trading partner, China, could significantly reduce its commodities orders, possibly because of lesser domestic needs for the Asian economic powerhouse or the entry providers such as the United States, Mr Rennie said.
America, in fact, has the ability to flood the Asian market with coal and liquefied natural gas (LNG), if it chooses to, which he added, could greatly impact on the economic standing of Australia.
The two products are two of the leading exports of Australia, Mr Rennie noted.
Should that happens, "we're going to start to revise down our investment expectations ... we're going to start putting off investment," Mr Rennie said.
The Australian dollar has been losing some of the tractions it accumulated since last year because the investment boom - originally thought by the federal government and economists to last for quite a while - has slowed down considerably, Mr Rennie said.
"We've reached the peak. The way that we think about Australia is going to change," the Westpac strategist declared.
Shane Oliver of AMP Capital was in complete agreement, explaining that commodities producers have been gradually acknowledging that investments in the country were approaching the peak.
If reversals were to be registered in the immediate aftermath, Mr Oliver is of the belief that producers "are likely to be less enthusiastic in announcing new projects in the future."
Yet according to HSBC Australia chief economist Paul Bloxham, the movement of the Australian dollar, especially its declines lately, could not be fully attached to the so-called investment peak.
The dollar, Mr Bloxham told BusinessDay, was actually following the path taken by the commodity prices and the reason it "has retraced is because commodity prices peaked (late last year) and have since come down."
Additionally, the dollar was taking the heat in the past weeks due to improving trade conditions in the U.S., which Chad Padowitz of Wingate Asset Management said, has been attracting investors' attention lately.
Furthermore, demands for Australia's key commodities exports appear to be dwindling, a fact that earlier this year was sounded off by giant miners, Mr Padowitz said.
"With BHP Billiton and Rio Tinto admitting that demand for iron ore has slowed down, I think all of those things have combined to weaken demand for the Australian dollar," the investment analyst told BusinessDay.