RBA confirms QRC analysis – resources sector spends mega bucks domestically

The RBA has released an excellent though technically demanding research paper on Industry Dimensions of the Resources Boom, which has received coverage in today’s Australian (Mining spreads work to 500,000). The RBA analysis confirms the analysis conducted by Reuben Lawrence for the Queensland Resources Council showing the resources sector is a major purchaser of goods and services from other sectors, which I referred to in my post on the billion dollar jobs package last Sunday.  The RBA analysis is hence further evidence that the Commonwealth Government’s assumption that Australian businesses are missing out on work from the resources boom is incorrect.

That said, I suspect the RBA’s estimated flow-on impact of the resources boom to other industries is slightly over-estimated. We know that a large share of the capital goods being invested in the sector are imported from overseas. Indeed, this is a large part of the story behind why Queensland’s investment and state final demand numbers have looked so good in the recent past, but our overall economy and labour market have been sluggish.

Unfortunately, there doesn’t appear to be any data to pin down the import share of resources sector capital investment, so the RBA was forced to assume one-half was imported, which it argues in consistent with business liaison the Bank has conducted (see p. 21 of the paper). The RBA may well have made a fair assumption, but given it appears a very important assumption and one based on limited data, I would like to have seen the RBA test the sensitivity of their results to variations in this assumption – i.e. what if the import content was 75% or higher?

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