Yesterday’s Reserve Bank Statement on Monetary Policy confirms that the Australian economy is heading back towards a strong GDP growth rate of around 4%, but highlights that the strength of the Australian economy depends critically on investments by the resources sector (and the timing of those investments).  The Bank observes:

The capital expenditure (Capex) survey’s second estimate of firms’ spending plans in 2010/11 points to a significant rise in buildings and structures investment, led by the mining sector. In particular, with work on the $43 billion Gorgon LNG project having commenced in late 2009, there is a significant pipeline of engineering work yet to be done.

Coal seam gas projects in Queensland are an important part of the upcoming investment spending by the resources sector:

Further out, there are a number of significant projects in the advanced stages of planning, including additional LNG projects on the North-West Shelf off the coast of Western Australia and coal-seam methane projects in Queensland.

Regarding the risks relating to the timing of resources sector investments, the Bank notes:

Given the uncertainty about the timing of a number of planned large investment projects in the resources sector, it is possible that overall growth over the next few quarters could be a little weaker than in the central forecast [i.e. GDP growth of 3.25% over 2010 and 3.75% over 2011].

The Bank notes the weakness in other sectors of the economy, and highlights the role of the Government’s school building stimulus program in supporting non-residential building activity:

In contrast to the mining sector, private non-residential building activity remains weak. Outside of public spending on private schools, the value of non-residential building approvals has remained at a low level since early 2009.