For years, the resources boom has been the gift that keeps on giving, driving the Australian economy forward through the post Global Financial Crisis period, helped in no small measure by the huge surge in mining-related capital expenditures (capex).
Now, mining capex is in free fall (see next chart), causing clear headwinds for the mining jurisdictions of Western Australia, Queensland and the Northern Territory.
Today’s national accounts release for March confirmed these trends, with state final demand (SFD) in these jurisdictions falling by a combined 0.7% in trend terms in the March quarter, the 10th consecutive quarter of decline (see next chart).
Indeed, the gap in SFD growth between the mining and non-mining jurisdictions continues to narrow (see next chart), although it has much further to run before it is closed – a process that will likely be complete only once mining capex returns to historical norms of circa 1% of GDP (see first chart).
The unwinding of the once-in-a-century mining boom is a key reason why we remain so bearish on Perth and Darwin property, as unlike Queensland, it has few other economic drivers, such as tourism, to fall back on.
Avoid these housing markets like the plague.
