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Sunshine Coast Trip Notes – still very strong

• Your scribe had the pleasure of visiting clients on the Sunshine Coast and Noosa last week. The underlying message was strength, with still very tight labour markets and demand remaining resilient. Firms overall are a little more uncertain about the outlook, especially around how high rates may go and how consumers will respond.
• There were lots of questions on what the RBA can do to reduce inflation, and whether they were really willing to tip the economy into recession if that was needed to bring inflation back to target. Many mentioned what fiscal policy could do, though also acknowledged the political limitations associated with fiscal policy.
• Housing was also a theme, with lots of focus on rents, and the limitations that high rents put on attracting and maintaining labour on the Sunshine Coast and Noosa. It was cited development restrictions had limited population growth in Noosa, while on the Sunshine Coast building was being constrained by the shortage of labour.
• As for specific industries: Mining was cited as an important driver of demand for some firms, as was flood recovery; the office market was tight (albeit it is relatively small compared to capital cities); industrial property remained strong, while residential was slowing. There were also sporadic reports of people remotely working from the Sunshine Coast for jobs based in Sydney and Melbourne.
• Overall clients on the Sunshine Coast and Noosa continue to report strong conditions and very tight labour markets. While only a microcosm, the themes from these clients are broadly reflective of what we are picking up in the NAB Business Survey, and it is clear the RBA is not yet in sufficiently restrictive territory to slow demand enough to be confident that inflation will return to the 2-3% target.
• NAB continues to see the RBA hiking rates in March, April and May, taking the cash rate to 4.10%. The risks remain that the economy has not shown enough signs of slowing, or of inflationary pressures easing sufficiently, for the RBA to be confident enough that inflation will get back down to 2-3% without a more material lift in the cash right and a sharper hit to activity and the labour market.

Chart 1: Travel has rebounded sharply on the Sunshine Coast

Chart 2: Labour market remains very tight with job ads still over double pre-pandemic levels on the Sunshine Coast

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