The handover of growth from mining to other areas of the Australian economy looks on track with this week’s CAPEX report providing more good news on this front.
Expectations for investment in the non-mining sectors have picked up and imply solid growth of around 7 per cent in 2014-15 while firms’ investment intentions continue to suggest mining investment will fall sharply.
This gives us more confidence the transition to non-mining drivers of growth is under way and non-mining activity is likely to continue to strengthen. In our view, the RBA is likely to be encouraged by the improvement in non-mining investment intentions but is likely to want to see more concrete evidence of an entrenched non-mining recovery before it begins to think about lifting the cash rate.
Adding to the downbeat sentiment around the mining sector is the ongoing weakness in iron ore prices. September is typically a stronger period for steel demand and prices, and low steel stocks should also be supportive of prices going forward. We expect to see some recovery over the next few months with prices reaching US$98 per tonne by year end.