March 20, 2013

State Economic Update – March 2013

The disparity between business conditions that became increasingly pronounced following the GFC has narrowed over recent quarters; however, the convergence of conditions readings largely reflects a weakening in previously stronger performing industries and regions, suggesting…


The outlook for NSW has softened since our last update, partly reflecting a sharp reduction in public investment. While mining investment provides an additional source of growth for NSW, it makes up only a relatively small share and recent weakness in activity in the coal industry is likely to weigh on investment in 2013. Nonetheless, mild activity in the NSW consumer sectors has helped to lower unemployment, which should assist growth over 2013, while a softening in the AUD and rising international student enrolments may help support services trade over coming quarters. While tightness in the housing market and declining affordability appear to be contributing to a rise in net outflow of persons from NSW, it does appear to have sparked increased activity in dwellings investment. The NSW economy should strengthen as the upswing in housing investment becomes more entrenched, although growth is likely to remain below trend in 2012‐13.


The Victorian economy slowed throughout 2012, with subdued investment and consumption expenditure contributing to a 0.1% decline in SFD over the year.Victoria’s housing market is lagging behind other states due to the unwinding of previous exceptional dwellings growth over 2009 and 2010. In addition,Victoria’s housing market is better supplied and this is likely to soften dwelling investment over the medium term. As a consequence of a softer outlook for housing, Victorian households appear more cautious, keeping the consumer sectors downbeat. This combined with the relatively small presence of mining in this state is likely to contribute to a higher rate of unemployment over the year ahead, though increases in labour productivity as a result of previous structural adjustment (due to the high AUD) should provide some offsetting strength. Overall, lower borrowing rates should eventually work to boost household spending, which should see growth in Victoria improve gradually over 2012‐13, albeit remain subdued.


A general softening in minerals and energy prices and the deferral of some marginal mining projects have contributed to a marked deceleration in Queensland’s growth over 2012. Reflecting the slowing pace of the mining investment boom,Queensland’s non‐residential investment pipeline has fallen recently. Furthermore, downgrades to the outlook for growth in Australia’s major trading partners – the US and Europe – have subsequently weakened demand from Asia, causing further deterioration in the state’s trade balance. While dwelling investment has consistently struggled to keep pace with rapid population growth in Queensland in recent years, government initiatives taken to strengthen first home buyer demand may help to promote increased dwellings investment in coming quarters. The outlook for Queensland remains better than the national average, although the weakness in labour intensive parts of Queensland may keep the unemployment rate elevated for some time, keeping the risks to this economy to the downside.

Western Australia

Growth in the Western Australian economy continues to surpass growth in all other states, with SFD increasing by 14% through 2012, supported by solid growth in private business investment. Household consumption growth was supported by the state’s strong population growth, as well as the high AUD, which has increased the purchasing power of the domestic consumers. While Western Australia’s non‐residential investment pipeline has fallen significantly, the pipeline remains elevated. Labour market conditions are strong, largely supported by exceptional growth in mining‐related investment. However, as labour intensive mining investment growth slows in coming quarters, so too will the economy.

South Australia

Conditions in the South Australian economy remain subdued, with SFD deteriorating into the final quarter of 2012, growing by just 0.3% over the year. South Australia continues to struggle under the weight of the still elevated AUD, which is weighing particularly heavily on the non‐mining trade‐exposed and retail sectors. With South Australia’s Olympic Dam expansion now unlikely to proceed in the near to medium term and with little other mining capital expenditure in the pipeline, economic growth in South Australia is likely to remain subdued through 2012‐13.


The Tasmanian economy is under-performing relative to the rest of Australia. SFD contracted by 4.6% over 2012 and the combination of slowing population growth and the restructuring of some sectors of the economy, including manufacturing and forestry, provides little upside to the near‐term outlook for this state. While the outlook for a softening AUD should be supportive for trade dependent sectors, uncertainty about job security is likely to keep consumer caution at the fore, while government fiscal tightening will continue to weigh more heavily in Tasmania than elsewhere (due to public demand accounting from more than 30% of SFD). Growth is likely remain subdued over 2012‐13.

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