RECESSION LIKELY AFTER MINING BUST

Written on the 13 September 2011

RECESSION LIKELY AFTER MINING BUST

AUSTRALIA will have a ‘bloody disaster’ on its hands once the resources boom runs its course, according to leading economist Frank Gelber.

While he could not put a use by date on the country’s resource-rich reserves, the BIS Shrapnel chief economist today predicted dire consequences when the day arrives.

“I don’t know when, but it will end and it will be a bloody disaster not only because we’ll see a collapse in investment, but as we finish projects, a lot of our current investment is geared towards minerals directly or indirectly and we’re geared up in our cities and in our industry structure to service very high levels of mineral investment,” says Gelber.

“So if you think about Brisbane, pre the minerals boom, it was a small city with branch offices and now it’s a thriving metropolis. A large proportion of people who are working in the city are working directly or indirectly in the minerals area, so if you take that investment away, there’ll be a recession.

“More importantly though, we’ve got this process of structural change and we’ve got the wrong industry structure for when the minerals boom ends.”

Gelber says production will have to gear up to supply local demand for consumer goods as a result. He indicates a return to manufacturing and a back to the basics approach, but it could be too late.

“Somehow, we have to pay for all of our consumer goods, so we’re going to have to produce a lot more of what we consume, rather than just importing it, so we’ll need the old industry structure we had, but a lot of this process has been erased,” he says.

“If you’ve got a B&B and business is slow, you can shut it down for a while and then re-open it when it’s busy and it’s fine. But if you’re talking about a manufacturing operation, with highly skilled labour, if you lose the labour, then you lose the business – to bring it back is impossible.

“It’s not just a matter of investing in the capital equipment, it’s really the high skilled labour that’s going to run it and we’re losing those skills – I see it in a lot of places and it’s a real disaster. In the short term, we run with the strength and the strength is mining and we’ll see a pick up in the economy as a result of that, but it’s short term.”

Gelber was speaking at a BIS Shrapnel Business Forecasting Conference today at the Stamford Plaza.


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