The federal government's proposed resources tax appears to have crushed the mining industry's spirits, even though the sector still enjoys strong trading conditions.
As the political argy-bargy over the planned 40 per cent resources super profits tax (RSPT) rages on, confidence among mining businesses has taken a massive hit in the latest National Australia Bank (NAB) business survey released today.
"While mining companies reported big falls in confidence they also reported the strongest business conditions - mainly due to higher profitability, most likely due to higher commodity contract prices," ANZ senior economist Katie Dean said.
Global financial market instability was also cited in a third straight monthly drop in the overall NAB business confidence index in May to below its long-run average.
This included concerns about sovereign debt and associated declines in Australian equity prices, NAB said.
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"In the case of mining, the announcement of the resource super profits tax would also have been a factor," it said.
The NAB confidence index fell eight index points to five points in May, led by a 30-point tumble for mining to four points.
The RSPT was announced on May 2 as part of the government's initial response to the Henry tax review.
The NAB business conditions index also fell two points to an index of six points.
Long-standing Reserve Bank of Australia (RBA) board member Jillian Broadbent told a conference in Melbourne that Australia was approaching the peak of its recovery from the global downturn.
Speaking ahead of a speech by RBA Governor Glenn Stevens on Wednesday, Ms Broadbent told stockbrokers "we are close to the top of the `V' in the economic recovery" and growth will fall back.
Ms Dean said some slowdown in growth was always expected around mid-year as higher interest rates start to work, Chinese growth eased and investment rotated from the public to the private sector.
"The problem now is that clouds are starting to shadow the much anticipated private investment revival, as capital market turbulence continues and miners announce project delays," she said.
NAB said it had cut its forecasts for Australian economic growth, reflecting consumer weakness, lower equity and commodity prices, and weaker forecasts for public final demand.
It now forecasts gross domestic product growth to be 2.75 per cent in 2010, down from a previous forecast of 3.5 per cent, and 3.5 per cent for 2011 instead of 4.25 per cent.
Macquarie Research associate economist Aimee Kaye said the NAB business survey was unlikely to change the immediate outlook for the RBA, which was expected to keep rates on hold over the next couple of months.
But she said business investment was set to be the major "swing factor" in the outlook for interest rates.
"With mining investment contributing to roughly one third of total private investment in Australia, the RBA is likely to watch business confidence, and capital expenditure plans, in the mining sector closely over coming months," she said.
