By Rhiannon Hoyle and James Glynn
SYDNEY--Spending on resources projects in Australia has fallen
at its fastest pace for 14 years, adding to the economic challenges
facing Prime Minister Tony Abbott at a time when government revenue
is shrinking and unemployment is edging higher.
The Australian government's commodities forecaster on Wednesday
reported a sharper-than-anticipated drop in investment in mining
and energy projects between May and October, as companies scaled
back expansion plans and finished up major developments.
At the end of October, there were 63 mining and energy projects
that companies had committed to building in Australia, worth a
combined 240 billion Australian dollars (US$219 billion), according
to the Bureau of Resources and Energy Economics, or Bree.
That was down from 73 projects worth some A$268 billion six
months earlier, it said in its biannual report.
"This large drop in investment is the result of two records
being set in the period--a record high for the value of projects
being completed and the lowest value of new projects being
sanctioned in the past decade," Bree said.
"Both measures are initial indicators that the Australian
resources boom is now transitioning from the investment phase to
the production phase," it added.
The slide was greater than expected, with the bureau having
earlier this year forecast that investment would still total some
A$256 billion at the end of 2013. It was the largest drop in
overall resources investment since 1999, according to Barclays
analyst Kieran Davies.
"There is a real risk that we're on the cusp of a massive
decline in mining expenditure here," Mr. Davies said. The
government's forecaster says investment in the Australian resources
sector may slide by more than two-thirds over the next five
years.
Alan Oster, Melbourne-based chief economist at National
Australia Bank, said the data was confirmation that the slide in
mining investment was happening at pace that's surprising most
forecasters.
NAB expects mining investment to contract at rates of between
10% and 20% per year "for as far as the eye can see," said Mr.
Oster, a former head of economic forecasting at the Treasury.
The figures highlight the challenge faced by the Australian
economy, now the world's 12th largest, to find sources of growth to
replace mining.
Australia's economy has slowed over the past year in line with
weakness in China--the country's largest trading partner--and lower
commodity prices, which has prompted mining firms to close mines,
lay off thousands of workers and put on ice plans for new
projects.
BHP Billiton Ltd. (BHP) Chief Executive Andrew Mackenzie has
said the world's biggest mining company would scale back capital
spending significantly in the coming years from a peak of more than
$22 billion.
The RBA has cut interest rates eight times to a record low 2.5%
to brace the economy against the mining slowdown and encourage
growth. Australia's unemployment rate was 5.7% in October, compared
with a rate of 5.4% at the start of the year.
Mr. Oster said that so far there was no evidence of a recovery
in investment in non-mining parts of the economy, which may
encourage policymakers to consider further interest-rate cuts early
in 2014.
"In non-mining investment, we are seeing absolutely nothing," he
said.
Government income has fallen in parallel with the mining
slowdown. Ahead of a scheduled mid-year update on government
finances in December, Treasurer Joe Hockey has warned of an ongoing
deterioration in government revenue due to the soft economy.
He told reporters earlier this month to expect the budget to be
"substantially worse" by the time of the update, compared with the
last review released ahead of the last election in early
September.
The central bank recently lowered its growth forecast for 2014,
saying mining investment may drop off more sharply than expected,
and that an elevated local currency was likely to hurt sales of
manufactured products. It lowered its economic growth estimate for
the upcoming calendar year to 2%-3% from an August forecast of
2.5%-3.5%.
The Bree data comes a day ahead of the release of official
third-quarter business investment data by the Australian Bureau of
Statistics, which is expected to further confirm the mining
investment slowdown and show other parts of the economy struggling,
despite recent data showing a strengthening in business
confidence.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com