As heat leaves mining, rest of Australia gets to breathe – by Wayne Cole (Reuters India – September 19, 2014)

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Sydney – (Reuters) – Australia’s miners face tough times amid a meteoric fall in the price of their cash cow, iron ore, but there are plenty of reasons to believe the rest of the economy can weather the storm and perhaps even profit from it.

Instead, the cool down in mining should be a relief since it offers breathing space for the 90 percent of the economy that doesn’t involve digging up resources – much of it sucked up by China, Australia’s major export market.

“Essentially we were told we had to make way for the miners – so put up or shut up,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital.

“Now mining is fading the rest of the economy can rebalance. We’ve had relief on rates, debt servicing costs are down, home prices are up and the Aussie dollar should ease over time,” he added. “Really, we should be celebrating.”

That is not to belittle the contribution of mining, or China’s importance, to the economy. The hundreds of billions spent on resource projects helped Australia sail through the global financial crisis relatively unscathed, and extend its enviable record of avoiding a recession for 23 years.

That investment is also fuelling a sharp rise in export volumes, which is helping temper the drag from falling prices which has seen iron ore shed 37 percent so far this year.

Annual economic growth in the second quarter slowed to 3.1 percent, from 3.4 percent in the prior three months, but is still ahead of most of its rich-world peers.

Shipments of the steel-making mineral to China from Australia’s Port Hedland reached all time highs in August, having climbed 62 percent in just 12 months.

That the gains came despite an economic slowdown in the Asian giant suggests Australia’s lower cost producers are taking market share from competitors.

HOMES MATTER MORE

Yet the success of the miners has had drawbacks for everyday Australians.

After all the dominant miners are multi-nationals largely owned by offshore shareholders, who got much of the benefits when prices were high but bear the risks when things go badly.

Back when the mining boom was in full swing, the Reserve Bank of Australia (RBA) made it clear that the rest of the economy had to be held back or risk a damaging inflation spike.

As a result, the RBA hiked interest rates a dozen times between 2002 and 2008, when they peaked at 7.25 percent.

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