A few weeks ago, a Morgan Stanley report about Australia possible entering a recession if mining capital expenditure suddenly fell sparked articles in all the major newspapers and finance journals. Some commentators responded to this fear by stating that the government's own Bureau of Resources and Energy Economics (BREE) was itself about to produce a report on this very matter, and that this might offer some reassurance.
Having just read the report, it seems to me that quite the reverse is true. It points out that many projects have recently been delayed or cancelled:
"The decline in the number of projects at the Committed Stage is indicative of the emerging trend of project proponents delaying or cancelling high value resources and energy projects in Australia. In the past twelve months around $150 billion of projects have either been delayed, cancelled or have had re-assessed development plans in the past twelve months."
Going forward, it offers two scenarios; one 'possible' optimistic scenario, and one 'likely' scenario.
This is how Business Insider sums up the picture pained in the 'likely' scenario:
"The passing of the peak of the mining boom is one of the big forces at work in the Australian economy. Other sectors are being relied on to keep driving growth as resources activity drops off. And according to research out today it will drop off pretty spectacularly.
"the projects that are expected to progress to the Committed Stage are insufficient to maintain the current stock of investment as of April 2013. Under this likely scenario the stock of committed investment drops over the next four years, from a peak of $268 billion in 2012 to around $25 billion in 2018."
So, mining investment is likely to drop from $268 billion to $25 billion? If Morgan Stanley analysts were already suggesting a possible recession based on figures that didn't look too bad (but which MS described as 'sombre'), then I wonder what they're thinking now that mining figures (by the government's own forecast) look set to fall off a cliff?
The report can be found here: