FYI | Jun 13 2006
By Rudi Filapek-Vandyck
Analysis of Australia’s national accounts has taught ABN Amro economists that while corporate profits are still growing strongly, they have become solely dependent on the resources boom.
Excluding the mining sector, Australia’s corporate profits over the past twelve months have grown by 1% only (versus 12% including mining).
One of the standout conclusions from the Q1 national accounts, the economists believe, is that profit growth for most of corporate Australia has now disappeared, with ABN Amro observing "[the] pick-up in growth in GDP in Q1 was profitless for many industries".
ABN Amro notes that the performance of non-financial companies, excluding mining, has not been as weak as in Q1 since 2000-2001.
This divergence will have consequences for Australia’s business investments, the broker believes, with business investments into 2007 now anticipated to be increasingly skewed towards the resources industry. (The economists note a gap of nine months seems to be standard).
The relationship between profits and investments in the non-mining sectors tends to be stronger than among the miners, the economists note, adding that in real terms profits at non-miners have been falling since late last year.
ABN Amro believes this suggests "significant" downside risk to investment outside the resources sector, a danger the economists have been flagging for a while now.