Non-mine sectors shock experts in Australia

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Underperformance in manufacturing, media and telecoms disappoints economists

One of Australia's leading economic forecasters says it is shocked and disappointed at how poorly Australia's non-mining sector is performing at a time when it should be offsetting a slowdown in the resources sector.

BIS Shrapnel recently predicted in a report that mining investment would peak in 2014 but other sectors would then take over as the primary drivers of growth.

However the pace of recovery in the non-mining sector was a worry, with companies in survival mode and economic output and profit growth compared to the resources industry the top problems, BIS Shrapnel's chief economist Dr Frank Gelber told a business conference in Melbourne yesterday.

The industries in the most trouble are manufacturing, information media and telecommunications, which are contracting in size and posting losses.

"By now we should've seen a spread of broadening investment beyond the mining sector because we stopped investing in non-mining areas when the [global financial crisis] hit," Gelber said. "It's mostly bad, if you take out mining, the rest of the economy is weak.

"By far the majority of businesses in Australia are doing it tough, hence the loss of confidence and pessimistic bias we see around the place.

"People won't invest unless it's necessary and won't spend any money until it's necessary and it becomes self-fulfilling with all the people that service that area weaker too and it perpetuates itself until we run into capacity constraints and have to invest again."

Gelber said he saw that as a silver lining because BIS's figures showed capacity utilisation in non-mining sectors such as construction, transport and retail was still well below the pre-global financial crisis peaks of 2007-2008.

"We know that if we're not investing enough to cater for even moderate growth, the eventual tightening capacity means we're going to have to start investing again in the non-mining sectors," he said.

"The question is when?

"It has been slow to come through, and we were a little bit disappointed about how slow but when we started to look a bit more closely at the capacity utilisation figures, it is pretty low."

Gelber said property development would kickstart a recovery, with two interest rate cuts possible in the near-term.

Sectors that were doing well included health services, wholesale trade and financial services.

Trade-exposed industries were struggling because of the high dollar and Gelber said for some to prosper, the Australian dollar would need to drop to US75c, which was unlikely to happen for now.

The Victorian Government came in for particular criticism for cutting investment and capital expenditure when its economic activity was among the nation's weakest along with South Australia.

He said BIS saw no evidence to worry about a sharp collapse in commodity prices or demand out of Asia, and for that reason the good Australian resources projects in the pipeline would go ahead.

The second half of the decade was still uncertain though, in relation to some larger mining projects planned.

Australian construction sector shrinking

The Australian construction sector posted the biggest drop in employment over the past year, a fall of 70,200 or 6.7 per cent.

The seasonally adjusted figures from the Australian Bureau of Statistics (ABS) yesterday are based on a survey in the middle month of each quarter.

They showed the number of people employed in construction in August was 978,300 - 8.5 per cent of the employed workforce compared to 9.2 per cent a year before.

The next biggest fall was in public administration and safety, recording a fall of 48,400 or 6.6 per cent. That was followed by the transport, postal and warehousing sector.

- AAP