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03-06-2014, 10:30 PM
Rebalancing act in two-speed economy
ANNABEL HEPWORTH AND ROSANNE BARRETT THE AUSTRALIAN JUNE 04, 2014 12:00AM
Annabel Hepworth
National Business Correspondent
Sydney
AUSTRALIA’S two-speed economy is undergoing an extraordinary shift as the resource-rich states of Western Australia and Queensland in the fast lane confront falling commodity prices while the slow-lane southeastern states close the gap with the benefit of buoyant property markets.
Economists said there was a narrowing of the two-speed split that in the past decade had seen some states on the “right side” of China and India-led demand for commodities prices, while others were on the “wrong side” of the interest and exchange rates that came with the resources boom.
“Those drivers have been normalising,” Deloitte Access Economics director Chris Richardson said yesterday. “Interest rates have now been low enough for long enough to spark better news in retail, and increasingly in housing construction too. That’s why, for example, NSW in particular looks better than it did. And the Australian dollar being off its highs has been good news — or at least less bad news — for manufacturing and for Victoria.”
The state budgets tell the story, with Victoria in surplus and the forecast deficit in NSW appears to be rapidly closing, both states helped by the property boom. Queensland yesterday delivered a $2.2 billion deficit, including capital costs, while there are fears Western Australia’s slim surplus could erode if commodity prices continue to slide.
As the property market cranks up, for Brisbane’s Giuseppe Petroccitto and his partner, Elle Harrison, it was a matter of taking a deep breath and jumping in or missing out. The young couple looked to buy for three months before they decided it was too risky to wait, and Mr Petroccitto, 27, stumped up for a two-bedroom CBD apartment, priced in the mid-$600,000 range. He runs the Bellazza string of cafes. If you think Ms Harrison, 23, looks familiar it’s because she appeared on Seven’s reality show My Kitchen Rules.
As real estate in Sydney and Melbourne booms, the stampede eventually reaches the northern capital. “The prices weren’t too bad but the demand was through the roof,” Mr Petroccitto said. “On the whole I think the market is good and on the climb; it is only going to keep climbing.”
NSW and Victoria also drove the growth in otherwise modest retail sales figures released yesterday. Retail sales grew at 8.1 per cent year on year in NSW and 7.2 per cent in Victoria, compared to 4.0 per cent in Queensland and 1.4 per cent in WA. For the monthly numbers in April, Queensland and WA posted slight falls.
Prominent economist Saul Eslake said there was a turnaround in the two-speed economy. “The regional disparities in growth are beginning to switch around,” he said.
He pointed to the recent round of state budgets. Western Australia’s economy is slowing, with growth forecast to slow from an average of 6.2 per cent over 2011-12 and 2012-13 to an estimated 3.75 per cent this year and 2.75 per cent in 2014-15. It is expected to then pick up again, rising to 3 per cent in 2015-16, then to 4.25 per cent and 5 per cent in the “out years”.
But falls in the iron ore price have sparked fears about the WA budget as so much of it comes from royalties on iron ore. The nation’s largest export has fallen in price for six months now. Every $US1 fall in the iron ore price strips $49 million from WA’s revenues.
Queensland’s budget yesterday confirmed that its growth would fall from 3.6 per cent in 2012-13 to 3 per cent this year as construction of major liquefied natural gas projects starts to wind down. Ratings agency Standard & Poor’s raised concerns about the mounting pressure on royalty revenues from ongoing softness in export prices of coal — Queensland’s largest mining export.
Nevertheless, the Sunshine State is set to be the fastest growing state from next year. While national growth is forecast at 2.5 per cent and 3 per cent in 2014-15 and 2015-16, Queensland is forecasting 3 per cent and 6 per cent over this time. The 6 per cent would be an 11-year high driven by ramped-up LNG production; in 2016-17 it is set to settle back at 4 per cent, in line with the long-run average.
Victoria’s economy is forecast to grow at 2.5 per cent in 2014-15, an improvement on the 2 per cent expected this year and the 1.6 per cent of 2012-13, though still down on earlier figures. From 2015-16, growth is predicted at 2.75 per cent.
New figures from the NSW Treasury — the last before the state budget in a fortnight — suggest than most of the $2.5bn deficit forecast has been wiped out.
“We are starting to see the different speeds actually converging,” Standard & Poor’s analyst Anna Hughes said.
Dr Richardson said the two-speed split was “merely narrowing rather than disappearing” as states such as WA were still shipping record volumes of commodity exports “and continue to enjoy more of a demographic dividend than the rest of Australia”.
HSBC chief economist Paul Bloxham said that a “great rebalancing act” was occurring across Australia, across both industries and geographies.
“A part of our idea that Australia has got a great rebalancing act to pull off is that you will see growth rebalancing across the states as well,” Mr Bloxham said. “NSW is the single largest state … so if growth does rebalance towards NSW, that in and of itself can be a key support for overall GDP growth in Australia.”
KPMG demographer Bernard Salt, The Australian’s social editor, said the nation was “not too far away” from the kind of population growth that sparked the “big Australia” debate, and this was often channelled through Sydney and Melbourne.
There was evidence of a “convergence” or “galvanising” of the economy where “WA and Queensland come off the boil and NSW in particular becomes the main piston that drives this country”, he said. “The driver I think is strong population growth ... And that population growth is largely channelled through Melbourne and Sydney, being the main ports through which new migrants come into the country.”
ANNABEL HEPWORTH AND ROSANNE BARRETT THE AUSTRALIAN JUNE 04, 2014 12:00AM
Annabel Hepworth
National Business Correspondent
Sydney
AUSTRALIA’S two-speed economy is undergoing an extraordinary shift as the resource-rich states of Western Australia and Queensland in the fast lane confront falling commodity prices while the slow-lane southeastern states close the gap with the benefit of buoyant property markets.
Economists said there was a narrowing of the two-speed split that in the past decade had seen some states on the “right side” of China and India-led demand for commodities prices, while others were on the “wrong side” of the interest and exchange rates that came with the resources boom.
“Those drivers have been normalising,” Deloitte Access Economics director Chris Richardson said yesterday. “Interest rates have now been low enough for long enough to spark better news in retail, and increasingly in housing construction too. That’s why, for example, NSW in particular looks better than it did. And the Australian dollar being off its highs has been good news — or at least less bad news — for manufacturing and for Victoria.”
The state budgets tell the story, with Victoria in surplus and the forecast deficit in NSW appears to be rapidly closing, both states helped by the property boom. Queensland yesterday delivered a $2.2 billion deficit, including capital costs, while there are fears Western Australia’s slim surplus could erode if commodity prices continue to slide.
As the property market cranks up, for Brisbane’s Giuseppe Petroccitto and his partner, Elle Harrison, it was a matter of taking a deep breath and jumping in or missing out. The young couple looked to buy for three months before they decided it was too risky to wait, and Mr Petroccitto, 27, stumped up for a two-bedroom CBD apartment, priced in the mid-$600,000 range. He runs the Bellazza string of cafes. If you think Ms Harrison, 23, looks familiar it’s because she appeared on Seven’s reality show My Kitchen Rules.
As real estate in Sydney and Melbourne booms, the stampede eventually reaches the northern capital. “The prices weren’t too bad but the demand was through the roof,” Mr Petroccitto said. “On the whole I think the market is good and on the climb; it is only going to keep climbing.”
NSW and Victoria also drove the growth in otherwise modest retail sales figures released yesterday. Retail sales grew at 8.1 per cent year on year in NSW and 7.2 per cent in Victoria, compared to 4.0 per cent in Queensland and 1.4 per cent in WA. For the monthly numbers in April, Queensland and WA posted slight falls.
Prominent economist Saul Eslake said there was a turnaround in the two-speed economy. “The regional disparities in growth are beginning to switch around,” he said.
He pointed to the recent round of state budgets. Western Australia’s economy is slowing, with growth forecast to slow from an average of 6.2 per cent over 2011-12 and 2012-13 to an estimated 3.75 per cent this year and 2.75 per cent in 2014-15. It is expected to then pick up again, rising to 3 per cent in 2015-16, then to 4.25 per cent and 5 per cent in the “out years”.
But falls in the iron ore price have sparked fears about the WA budget as so much of it comes from royalties on iron ore. The nation’s largest export has fallen in price for six months now. Every $US1 fall in the iron ore price strips $49 million from WA’s revenues.
Queensland’s budget yesterday confirmed that its growth would fall from 3.6 per cent in 2012-13 to 3 per cent this year as construction of major liquefied natural gas projects starts to wind down. Ratings agency Standard & Poor’s raised concerns about the mounting pressure on royalty revenues from ongoing softness in export prices of coal — Queensland’s largest mining export.
Nevertheless, the Sunshine State is set to be the fastest growing state from next year. While national growth is forecast at 2.5 per cent and 3 per cent in 2014-15 and 2015-16, Queensland is forecasting 3 per cent and 6 per cent over this time. The 6 per cent would be an 11-year high driven by ramped-up LNG production; in 2016-17 it is set to settle back at 4 per cent, in line with the long-run average.
Victoria’s economy is forecast to grow at 2.5 per cent in 2014-15, an improvement on the 2 per cent expected this year and the 1.6 per cent of 2012-13, though still down on earlier figures. From 2015-16, growth is predicted at 2.75 per cent.
New figures from the NSW Treasury — the last before the state budget in a fortnight — suggest than most of the $2.5bn deficit forecast has been wiped out.
“We are starting to see the different speeds actually converging,” Standard & Poor’s analyst Anna Hughes said.
Dr Richardson said the two-speed split was “merely narrowing rather than disappearing” as states such as WA were still shipping record volumes of commodity exports “and continue to enjoy more of a demographic dividend than the rest of Australia”.
HSBC chief economist Paul Bloxham said that a “great rebalancing act” was occurring across Australia, across both industries and geographies.
“A part of our idea that Australia has got a great rebalancing act to pull off is that you will see growth rebalancing across the states as well,” Mr Bloxham said. “NSW is the single largest state … so if growth does rebalance towards NSW, that in and of itself can be a key support for overall GDP growth in Australia.”
KPMG demographer Bernard Salt, The Australian’s social editor, said the nation was “not too far away” from the kind of population growth that sparked the “big Australia” debate, and this was often channelled through Sydney and Melbourne.
There was evidence of a “convergence” or “galvanising” of the economy where “WA and Queensland come off the boil and NSW in particular becomes the main piston that drives this country”, he said. “The driver I think is strong population growth ... And that population growth is largely channelled through Melbourne and Sydney, being the main ports through which new migrants come into the country.”