changes in sentiment affecting other parts of the resource sector. of greater concern for lng projects are rising costs, which reduce the returns on projects underway and reduce the prospects of future expansions. some of what has been reported as higher costs by mining companies reflects the appreciation of the australian dollar. some companies had budgeted for these projects in us dollar terms at a lower exchange rate than we face currently. still, there ’ s no denying that costs have increased over time even in australian dollar terms. graph 7 the estimates for gdp and employment shares of the resource sector as a whole in the mid 2000s are 10 per cent and almost 5 per cent, respectively. bis central bankers ’ speeches graph 8 we can try to look at some data from the australian bureau of statistics to gain some understanding of changes in costs over time, although it will not pick up important differences across different projects in different industries. there is evidence in the aggregate data of higher inflation of wages in the mining industry, and across western australia more generally ( graph 7 ). while the growth of these wages has picked up a little recently, this is unlikely to be sufficient to account for the magnitude of some of the cost overruns being reported. nevertheless, the level of wages in the mining industry remains relatively high, though this reflects the relatively high capital - to - labour ratio in this industry ( graph 8 ). one plausible explanation for at least some of the cost overruns is logistical problems affecting a number of projects. it seems that the engineering challenges for some projects are even more complex than initially thought. there are cases of projects taking longer to complete, and / or requiring more investment to bring them to fruition. in other cases, the scope of the project may have changed. all of these things can alter the profile for mining investment by affecting both the timing and the amount of expenditure. graph 9 bis central bankers ’ speeches so, what ’ s been the net effect on the outlook for mining investment overall of these changes in sentiment, timing, scope and costs? as best we can tell, mining investment now appears likely to reach a peak a bit earlier – sometime this year – and at a lower level – of around 8 per cent of gdp – than we had earlier expected ( graph 9 ). this is broadly consistent with the latest abs survey of firms ’ capital expenditure plans, which shows that in the mining sector, the growth of nominal investment in 2012 / 13 was revised from around 40 per cent to 20 per cent from the june quarter

the share of economic activity accounted for by the resource sector since the mid 2000s. while the share of the workforce directly employed in the business of mining has doubled since then, it remains relatively modest ( at around 2½ per cent ). however, there has been a substantial spillover of activity to other parts of the economy, including to a wide range of businesses that help mining companies to extract resources or to build up their capital infrastructure. the bank will soon publish some research providing estimates of the contribution of mining and mining - related activity to gdp and employment ( rayner and bishop, forthcoming ). this work suggests that the resource sector as a whole currently accounts for around 18 per cent of gdp, with about a third of this owing to resource - related activities. similarly, the resource sector accounts for almost rio tinto and un projections suggest a peak in 2030. projections by the bureau of resources and energy economics ( bree ) show demand increasing through to 2025. bis central bankers ’ speeches 10 per cent of employment, with a bit more than two - thirds of this owing to resource - related activities. 6 the sharp fall in bulk commodity prices from the middle of last year prompted mining firms to reassess their expenditure and the viability of some investment projects that had been under consideration. some uncommitted projects were deferred. much exploration activity was curtailed. spending on machinery and equipment was scaled back significantly. and some existing operations were shut down, primarily smaller, older, higher - cost coal mines. this turnaround in sentiment came about in part because lower prices reduced cash flows and external financing became harder to come by, making it more difficult to finance resource investment. the recent sharp rise in iron ore prices, as best we can tell, has not yet made much of a difference to investment plans, presumably because the price is not expected to stay at its current high level. as you are all no doubt well aware, a large share of mining investment currently underway in australia is in the liquefied natural gas ( lng ) sector. lng projects require significant investment over a 3 – 5 year period, and a very long period of production to recoup the initial investment. as a result, commitments to invest in these projects are made on the basis of long - term contracts signed with the buyers of lng ( with those buyers often even taking an equity stake in the project ). for this reason, investment in lng has been resilient to the significant