The Australian economy is currently experiencing a surge in mining activity, one of a sequence of mining booms since the European settlement of Australia. These have been a powerful force in shaping the Australian economy. The distinguishing features of a mining boom are significant increases in mining investment or mining output, usually both, which go on to have important macroeconomic consequences. On this basis, I think we can identify five major mining booms during the past two hundred years or so.
The 1850s gold rush
This great impact of the current mining boom in Australia, sustained by an unprecedented demand for minerals from China, has helped our country to withstand global financial turmoil.
The 1850s gold rush was the first major mining boom in Australia. This boom ended up being mainly centred on the gold fields of Victoria. It was atypical compared with later booms in that it was not accompanied by a large increase in mining investment. The boom lasted for about a decade and a half; by the mid 1860s, the gold rushes of Victoria had largely faded.
The late 19th century mineral boom
This boom was driven by the discovery and development of new gold and metal mines across the country, but particularly in Western Australia, Queensland and western New South Wales. Partly this was the natural consequence of the spread of the population to more remote areas, but partly it reflected capital market developments.
The 1960s/early 1970s mineral and energy boom
This boom was quite broadly based, but the key parts were sharp increases in mining of coal and iron ore, and the development of oil and bauxite discoveries. The background to this boom was that both the global and domestic economies were becoming increasingly stretched, with rising commodity prices and rising inflation more generally. Particularly important for Australia during this period was the economic development of Japan. As well as adding to the global demand for resources, this had particular significance for Australia because Japan’s proximity lowered transport costs and made certain mineral discoveries economically viable.
The late 1970s/early 1980s energy boom
This boom was largely driven by the energy sector, in particular steaming coal, oil and gas. This followed the second of the oil price shocks in the late 1970s. In addition, the increased cost of energy made Australia an attractive place for energy-intensive activities such as aluminium smelting.
The current boom in mining has been, to a large degree, driven by demand for resources by emerging economies, with China being the most significant. How long the current surge in mining activity will continue is uncertain. Past booms do not seem to have lasted more than about 15 years before resource depletion, or international or domestic developments, acted to slow economic activity and bring the boom to an end.
The Australian economy has developed in ways that should make it better able to accommodate the surge in mining activity that is currently under way. The floating exchange rate is a key difference, but goods and labour markets are also more flexible, and the monetary and fiscal policy frameworks are now more soundly based. This gives grounds for confidence that we can do better this time, but the task will not be without challenges.