Cloud Hosting

Veteran budget watcher Chris Richardson said he was not surprised the sectors profits were falling.

When the terms of trade is broadly at century-and-a-half highs, no wonder that prices are coming down, and no wonder that relatively more than usual of that is showing up in profits, he said.

We are earning just pure cream, and so every little bit of prices is one-for-one eating into profits right now.

Lower commodity prices pose a challenge to federal and state governments, which have enjoyed windfall gains in mining royalties and company tax receipts thanks to the 90 per cent surge in commodity prices between mid-2020 and mid-2022.

Treasury baked further commodity price falls into the May budget, underpinning official forecasts the federal governments budget will turn back to deficit in the current financial year.

Though commodity prices have fallen, Mr Richardson said the declines were not large enough to rule out the prospect of Treasurer Jim Chalmers revealing a second budget surplus at the May 2024 budget.

However, the possibility of another surplus would vanish if Chinas economic slowdown intensified, given Australias exposure to the worlds second-largest economy.

A China slowdown is more an issue for the commodity exporters than it is for the world as a whole, Mr Richardson said.

Outside the mining sector, profits fell by 5 per cent, driven by weakness across the manufacturing, transport, hospitality and real estate industries.

Wages growth continued to outpace profits due to the tightness in the jobs market. Non-mining wages increased by 9.9 per cent over the past year, compared with a 5.1 per cent lift in non-mining profits.

Unlike the wage price index, which only measures changes in rates of pay, the data released on Monday capture the wages bill, so they are also affected by movements in headcount and compositional change in the workforce.

Meanwhile, inventory levels fell by 1.9 per cent, compared with market expectations for a 0.4 per cent gain. It means inventories will subtract around 1 percentage points from GDP growth in the June quarter.

Commonwealth Bank economist Stephen Wu said the surprise fall in inventories was a considerable risk to the national accounts.

However, JPMorgan economist Tom Kennedy said the fall in inventories meant household spending could be stronger than expected or that imports were lower than forecast, offsetting some negative effect of lower inventories on GDP growth.

See the original post:

Mining industry profits fall by most since the GFC - The Australian Financial Review