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SYDNEY, Nov 9 AAP

November 09 2012, 11:37AM

Weaker commodity prices and a high exchange rate have dealt a double whammy to Australia's mining sector, making companies less willing to invest, and driving expectations for domestic growth lower.

In its Statement on Monetary Policy released on Friday, the Reserve Bank of Australia (RBA) said weaker spending in the resources sector had prompted it to drop gross domestic product (GDP) growth forecasts for 2013 to below 2.75 per cent, compared to a forecast of 3.0 per cent in its previous statement in August.

"The forecasts have been revised down slightly since the August Statement, largely reflecting a downward revision to mining investment, which reduces GDP growth over 2013 by around half a percentage point (net of imports)," it said.

The RBA said recent falls in bulk commodity prices, plus the high Australian dollar, had put pressure on the industry, making mining companies less likely to go ahead with new projects, and slow activity on others.

"Lower prices have reduced mining companies' cash flows and reduced their appetite for investment spending," it said.

"Sentiment has also been weighed down by the high exchange rate and rising cost pressures. As a result, a number of large uncommitted projects have been deferred, companies are slowing the pace of spending on some committed projects, and some older, higher-cost coal mines have been closed."

Iron ore and coal mining had been hit particularly hard, as lower expectations for global growth suggested weaker demand in the near future.

"Notwithstanding the general conservatism in previous Bank forecasts about the likelihood of committed projects going ahead, the profile of capital spending on iron ore and coal in 2013 and 2014 has now been revised lower," the RBA said.

However, the sub-industry of liquefied natural gas (LNG) had remained relatively untouched by these concerns, the RBA said.

"(Mining) investment in the coming year is still expected to rise, underpinned by construction on a number of very large LNG projects," it said.

"LNG investment continues to ramp up as these projects have not been adversely affected by the shift in sentiment elsewhere in the resources sector."

However, the pace of investment would be slower than it had been during the 2011/12 period, and would peak sometime during 2013.

By Caroline Smith