The Age

Economy gap tipped to widen

Date: 24/04/2012
Words: 439
Source: AGE
          Publication: The Age
Section: Business
Page: 1
THE chasm between the mining industry and the economy's slow lanes will widen further this year, as a business investment boom goes into "overdrive", says a new report.

In a sign the economy is set to become more lopsided, Deloitte Access Economics has predicted a rapid acceleration in resource investment in coming years, alongside further weakness in industries such as home building and retail.

The March Business Outlook report, to be published today, says spending on engineering construction will surge 47 per cent this financial year to almost $80 billion, before climbing to $92 billion in 2012-13 and $100 billion in 2013-14.

In contrast, investment in the important housing sector will remain subdued, shrinking 2.1 per cent to $70 billion in 2011-12 and growing just 5.5 per cent in 2012-13.

With most of the nation's highest employing industries in the doldrums, the report also predicts consumers will continue to save close to 10 per cent of their income, keeping spending growth weak.

As a result of the widening gap between miners and the rest, the report predicted Australia's "two-speed" economy would worsen in years ahead, despite overall growth being solid.

Gross domestic product would expand by 2.9 per cent this financial year and 3 per cent in the next, it said.

Treasurer Wayne Swan acknowledged the differences between sectors, but said the mining tax and a 1-percentage-point cut in company taxes would help struggling businesses.

By bringing the budget into surplus in 2012-13, he said the government was making sure the Reserve Bank had "maximum flexibility" to cut interest rates if needed.

"This report supports government's view of the economy, with a return to trend growth, low unemployment and a massive pipeline of investment surging through the economy," Mr Swan said.

"There is an avalanche of business investment forecast for this year and next, showing that despite the scaremongering from some quarters, the private sector is putting its money on the table and voting with confidence in the future of our economy."

A partner at Deloitte Access, Chris Richardson, said the divide between mining and other parts of the economy had become so great that business investment was responsible for more than all the economy's net growth this financial year.

He said the main reason sectors outside mining were struggling was the high dollar, which has battered manufacturers in particular. "For a bunch of businesses, when the dollar is above parity, they can't make a dollar," Mr Richardson said.

While some economists and business leaders have criticised the government's plan to bring the budget into surplus when many industries are struggling, the report said a surplus was now "less dangerous" to growth because of improvements in Europe's debt crisis.

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