GO
Loading...

Australia's Mining Boom to Continue: Economist

Investors have been spooked in recent weeks by a slowdown in growth in China and the impact that could have on Australia's resources sector. But according to one economist, Australia's commodities sector will continue to do well and could actually benefit from a pick-up in economic growth in Asia in the second half of 2012.

A coal dredger tears coal from the face of the Loy Yang Open Cut coal mine in the Latrobe Valley, 150km east of Melbourne on August 13, 2009.
Paul Crock | AFP | Getty Images
A coal dredger tears coal from the face of the Loy Yang Open Cut coal mine in the Latrobe Valley, 150km east of Melbourne on August 13, 2009.

"Really, the overall story is that the Australian market is in pretty good shape. The mining and investment boom is going to be a key support for growth this year," Paul Bloxham, Chief Economist for Australia & New Zealand at HSBC said on Monday.

"Two-thirds of (Australia's) GDP growth this year and next will likely come from the mining investment boom, so you don't need the rest of the economy to grow very much in order to see around-trend growth," Bloxham said.

Worries about a slowdown in Australia's economy has prompted some investors to bet on a cut in interest rateswhen the Reserve Bank of Australia (RBA) meets on Tuesday. Interbank futures have priced in a 30 percent chance of a rate cut on Tuesday and a 100 percent chance of a cut at the May meeting.

But Bloxham expects the strong economy to force the RBA to shift its focus to managing inflationary risks by the end of the year, which he says, may lead to rate hikes in 2013.

Meanwhile, Roger Montgomery, the CEO of Montgomery Investment Management, echoed Bloxham's view that the Australian resources sector is doing well, but also warned that the space is starting to look over-bought.

"We are exposed to the mining services companies. It was a very pleasant train to be on in the past 12 months, but it looks very crowded now," Montgomery said, adding that it is much harder to find bargains in the area.

Montgomery is also keeping tabs on iron ore and coal, as a fall in their prices would signal that mining activity in Australia is slowing down.