Australia’s Mining Investment Boom a ‘Mixed Blessing,’ Swan Says

?€œI?€™m acutely aware many businesses are doing it tough,?€ Swan said in his weekly economic note released yesterday, citing tighter credit and ?€œcautious?€ consumer spending.

Asian demand for energy and commodities is driving record investment, including last week?€™s approval by ConocoPhillips and Origin Energy Ltd. of the first stage of a $20 billion liquefied natural gas project in Queensland State. The so-called Aussie, the world?€™s fifth-most traded currency, has risen 22 percent against the U.S. dollar in the past 12 months as the mining boom drove unemployment below 5 percent.

Prime Minister Julia Gillard?€™s government estimates that mining investment will reach A$76 billion ($84 billion) this fiscal year. The nation is undergoing what the Reserve Bank of Australia calls a structural change -- a shift in productive capacity to the mining and construction industries while the stronger currency hurts exporters, education, tourism and manufacturing.

?€œClearly the high dollar is making life pretty tough for many trade-exposed sectors,?€ Swan said. ?€œThe lingering effects of the global financial crisis are adding to this, with a cautious consumer and tighter credit.?€

Interest Rates

The RBA will keep its overnight cash rate target unchanged at 4.75 percent when it meets tomorrow, according to 21 of 25 economists surveyed by Bloomberg News on July 29. The nation?€™s benchmark rate is the highest among the world?€™s developed economies.

The Australian dollar traded as high as $1.1081 last week, the highest since the end of exchange controls in 1983, after a government report showed second-quarter consumer prices rose more than economists had forecast.

Consumer sentiment plunged last month by the most since Lehman Brothers Holdings Inc. collapsed in 2008, a survey from Westpac Banking Corp. and the Melbourne Institute showed. Business confidence dropped to a six-month low, according to a National Australia Bank Ltd. survey of more than 400 companies from June 24 to June 30.

?€œDespite our underlying strength, we know that the investment boom is a mixed blessing,?€ Swan said.

--Editors: Ed Johnson, Paul Tighe

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