March 8, 2017

State Economic Handbook: March 2017

Growth will remain solid across the large south-eastern states, while there are signs of stabilisation in mining states as the end of the downswing in resource-related investment approaches.

Key points

  • Looking forward, Victoria and New South Wales will remain ahead of the pack in terms of state final demand growth, although Queensland will experience the strongest growth overall thanks to resource exports. While momentum has slowed a little from the rapid growth rates in 2015-16, Victoria and NSW will continue to benefit from buoyant population growth (especially Victoria), strong services activity and infrastructure expenditure.  Non-mining business investment in these states has also started to strengthen and will gradually pick up speed, although this will be offset by residential construction peaking and no longer contributing as fervently to growth. The ACT economy is also gradually improving thanks to a more stable labour market and stronger housing demand.
  • Queensland and WA (and to a lesser extent NSW) are currently receiving an income boost from higher bulk commodity prices, which are flowing through to corporate profits and state government revenue. Resource export volumes will also add strongly to real gross state product in  Queensland, WA and the NT as large (mostly LNG) projects are completed through 2017. These states and territories are also well advanced through the downswing in mining investment, although the outlook for mining investment is unlikely to improve given our expectation that the current surge in bulk commodity prices will be temporary.  Job losses in mining (and weaker population growth) will continue to pose a challenge to domestic demand, particularly dwelling construction in mining regions and consumer spending in WA, the NT, and parts of Queensland. That said, stabilisation in some high frequency data indicates that the worst of the downturn may be behind us.
  • Tourism spending (both domestic and international) and education exports will continue to expand in most states and territories, although the pace of growth is easing somewhat and will be dependent on the path of the Australian dollar.
  • Infrastructure spending is also ramping up, particularly in NSW and Victoria, financed in part by strong growth in stamp duty revenue and royalties in some states. The SA government is attempting to utilise infrastructure spending to offset the impact of the closure of auto manufacturing and until shipbuilding activity picks up. That said, for SA, as for Tasmania, demographics and a concentrated industry structure will remain challenges.
  • In 2016, agriculture enjoyed a generally wet winter and spring, especially in NSW, Victoria, Queensland, SA and Tasmania, although WA was dryer. Looking ahead to 2017, the Bureau of Meteorology forecasting a hot, dry autumn for the whole continent (except far north Queensland and northern NT) and likely El Nino by winter – a worrying outlook for all farmers.

A snapshot of the outlook for each state and territory is available in our States Overview document (attached). Links to individual handbooks for each state and territory are included below.

  • The New South Wales economy will remain neck and neck with Victoria as one of the country’s leading economies in terms of state final demand. While  growth is expected to moderate and the latest partial data is indicating a mixed picture, we expect strong population growth, infrastructure spending and a further recovery in non-mining business investment to support growth. The anticipated peak in the housing construction boom will pose a challenge to growth going forward.
  • Victoria will also remain a standout across the states  despite some moderation expected, with growth neck and neck with NSW. Employment and population growth (particularly from overseas and interstate migration) is expected to continue, while infrastructure spending, services activity and exports and a gradual recovery in non-mining investment will be key pillars of growth. Residential building approvals have peaked, and dwelling construction is not expected to add as significantly to growth going forward.
  • South Australia will experience moderate growth, with infrastructure spending and shipbuilding providing some offset to the impact of auto manufacturing closures this year. While employment and consumer spending are holding up for now, long-term challenges such as the narrow industrial base, ageing population and negative interstate migration will weigh.
  • The Australian Capital Territory economy has strengthened, with greater stability in public sector employment supporting population growth and housing demand and construction. We expect moderate growth going forward and low unemployment.
  • Queensland will experience the strongest rate of economic growth in 2016-17 owing to a surge in LNG exports and strength in tourism and education exports. Business and labour market conditions however will remain mixed, with south-eastern Queensland outperforming regional areas, and falling mining investment will drag on state final demand. High coal prices are boosting nominal income growth and state government revenues, although the flow on effects to investment and employment will be limited given the temporary nature of the commodity price surge.
  • The mining cycle continues to dominate economic trends in Western Australia, although the unexpected partial rebound in commodity prices since last year adds to the uncertainty around the outlook. Overall, we expect very weak real GSP growth in  2016-17 and a moderate rebound in 2017-18 as LNG exports add to growth. The current surge in iron ore prices is unlikely to spur additional investment or employment,  but is having a positive impact on government finances.
  • The Tasmanian economy has slowed into 2016-17 despite strength in tourism, agricultural and fisheries industries, although should improve moderately into 2017-18. An ageing population, low levels of educational attainment and a concentrated industry structure remain headwinds.
  • In the Northern Territory, employment, wages, household consumption and dwelling prices are starting to struggle as the Icthys LNG project approaches completion. With NT’s growth base narrow, these challenges will intensify although  export volumes will boost GSP growth in 2017-18.

For more information download the attachment: