Westpac Coast-to-Coast June 2018 - An update on Australia's state economies Westpac Institutional Bank - XYLO Foreign Exchange
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Westpac Coast-to-Coast June 2018 An update on Australia's state economies Westpac Institutional Bank
Westpac Economics
Sydney Auckland London
Level 2, 275 Kent Street Takutai on the Square Camomile Court,
Sydney NSW 2000 Level 8, 16 Takutai Square 23 Camomile St,
Australia Auckland, New Zealand London EC3A 7LL
Telephone (61–2) 8254 8720 Telephone (64–9) 336 5671 United Kingdom
Facsimile (61–2) 8254 6907 Facsimile (64–9) 336 5672
Bill Evans Dominick Stephens Singapore
Chief Economist Chief Economist, New Zealand 12 Marina View
Global Head of Economics & #27–00, Asia Square Tower 2
Research Michael Gordon Singapore, 018961
Senior Economist
Andrew Hanlan New York
Satish Ranchhod
Senior Economist
Senior Economist 39th Floor
Matthew Hassan 575 Fifth Avenue
Senior Economist Anne Boniface New York, 10017 USA
Senior Economist
Justin Smirk
Senior Economist Paul Clark
Industry Economist
Elliot Clarke CFA
Senior Economist
Simon Murray
Economist
Coast–to–Coast produced by Westpac Economics
Editor: Andrew Hanlan, Senior Economist
Authors: Matthew Hassan and Elliot Clarke, Senior Economists
Simon Murray, Economist
Email: economics@westpac.com.au
This issue was finalised on 21 June 2018
Publication enquiries, Westpac Economics, Telephone (61–2) 8254 8720, economics@westpac.com.au
2Contents
Overview
Australian economic outlook 4
States overview 6
Employment and activity, by state 8
Employment by industry, a state view 9
States
New South Wales: construction & exports key positives 12
Victoria: capacity building investment 14
Queensland: government's aspirations strong 16
Western Australia: recovery still anaemic 18
South Australia: private spark necessary 20
Tasmania: economy powers ahead 22
Summary indicators 24
Forecasts: state activity and employment 25
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3Westpac Coast-to-Coast June 2018 Australian economy The March quarter national accounts provided further confirmation that the Australian economy performed solidly over the past year. However, areas of weakness persist and are likely to weigh on the outlook. Real GDP grew by 1.0% in the March quarter, lifting annual growth to 3.1% – an above trend outcome, with trend judged to be 2.7%. Non-farm GDP grew by 3.6% over the year, the strongest annual outcome since 2012. These results bring output growth more into line with that for employment, which increased by 3.5% over the year. Domestic demand growth is in excess of 3%, a trend evident across the majority of states, as discussed in more detail in this report. Economic conditions have been supported by a combination of global and domestic forces, leading to conditions becoming more synchronised across the state economies, namely: 1. The global backdrop is more favourable. World growth accelerated in 2017 to 3.8%, up from 3.2%, the strongest pace since 2011. We expect world growth to hold around this 3.8% pace in 2018, supported by the US. However, conditions in China are likely to moderate. 2. Commodity prices are up off the lows of late 2015, improving cash flows for miners and boosting government tax revenues. Going forward, we expect commodity prices to moderate as China slows and supply expands. 3. The mining investment drag is greatly diminished, albeit not quite complete. 4. Non-mining investment is trending higher, led by construction activity, to meet the needs of a fast growing population. Notably, total business investment turned the corner in 2017, up 6%, following four years of decline. 5. Public demand, a quarter of the economy, grew by a brisk 5.5% over the year, directly adding 1.3ppts to activity, with additional positive spill-over effects. Investment in an upswing (centred on transport infrastructure) and additional resources are being directed to health. Above trend public demand growth is a broadly based national trend. 6. Exports are a growth driver, adding 0.9ppts to activity over the year, with strength in LNG (expanding capacity) and services (albeit current estimates suggest a recent consolidation). Weaknesses remain, particularly around the consumer and housing. The consumer is vulnerable at a time of weak wages growth, high debt levels and slipping house prices - a dynamic that is, in large part, evident nationwide. The housing sector is cooling as lending conditions tighten, with prices easing back from recent highs. Auction clearance rates in Sydney and Melbourne have slipped further to now be at below average levels, following a particularly strong upswing in these markets. Consumer spending is choppy (up only 0.3% in the March quarter) and ‘slightly below trend’ (up 2.9% over the year). Even the current pace of consumer spending appears unsustainable over the forecast period – we expect a slowing to 2.5% for 2018 and 2019. Spending has been supported by a drop in the savings rate, declining to 2.1% from 4.0% a year ago, with the scope for a further run-down diminished. In addition, the turnaround in housing price growth, from 11.3%yr nationally a year ago to –1.5%yr currently, could see negative spill-overs for consumer demand, although ‘wealth effect’ boosts look to have been very muted through the price upturn. Total labour income grew by a robust 5.1% over the past year, but this was largely reliant on a very strong hiring burst that looks to have been temporary. Wages, as measured by average compensation of non-farm employees, grew by only 1.6% over the year, to be flat in real terms. Employment increased by 3.5% in the year to the March quarter 2018, twice population growth, in part a catch-up following a hiring pause around the July 2016 Federal election. Jobs growth has subsequently slowed in 2018, to 1.2% annualised for the initial five months – for the full year we expect an increase of around 1.8%. As to home building activity, this contracted by 5.0% in 2017, consistent with the decline in dwelling approvals from the historic highs of 2016, largely centred on high rise projects. This downturn has further to run with the contraction accelerating into 2019 after a near-term consolidation early in 2018. Large increases in new supply and a marked slowdown in sales to foreigners are weighing on the outlook for residential building. In summary, key positives around pubic demand, business construction investment and exports will provide a solid base for economic activity but upside is likely to be constrained by the consumer and housing. We expect GDP growth to average 2.6% for 2018/19 and 2.7% for 2019/20. This is not greatly different from the aggregate view of the state governments, as expressed in the recent round of annual budgets, which points to growth of 2.8% over the forecast period (see forecast table page 25). However, this contrasts with the RBA and the Federal Treasury, who expect growth of 3%, 3% plus. Andrew Hanlan, Senior Economist 4
Westpac Coast-to-Coast June 2018
Australian economic outlook
Chart 1. Chart 2.
Australia: real output growth Australian outlook: year-end contributions
% ann % ann
7 7 2.7
Sources:
GDP GDP per capita period averages Fc/s to GDP 2.5
6 3.7%, 2.6%
6 ABS,
end 2019 Westpac 1.5
5 5 Consumption Economics
1.5
-0.1
4 4 Housing -0.3
3 3 -0.4 Dec-18f
Mining inv. 0.0
2 2
0.8 Dec-19f
Non-mining inv. 0.5
1 1
1.1
0 0 Public demand 0.8
period averages
-1 2.5%, 1.0%
-1 Exports 0.8
1.1
latest: GDP, 3.1%yr
-2 GDP per capita, 1.5%yr -2 -0.9
Sources: ABS, Westpac Economics
Imports -0.8
-3 -3
Mar-92 Mar-96 Mar-00 Mar-04 Mar-08 Mar-12 Mar-16 Mar-20 -2 -1 0 1 2 3
ppts
Chart 3. Chart 4.
Australia: economic activity Dwelling approvals: off highs, further to fall
ppts cont’n yr ppts cont’n yr ’000 mth, annls’d ’000 mth, annls’d
Other* Net exports Public
8 Investment Housing Consumer 8 private approvals
240 240
trend
6 6
sa
4 4 200 200
2 2
160 160
0 0
L.R. avg: 167k
120 120
-2 -2 RBA easing
cycles
Sources: ABS, Westpac Economics updated: Jun ’18 Sources: ABS, RBA, Westpac Economics
-4 -4 80 80
Mar-02 Mar-06 Mar-10 Mar-14 Mar-18 Apr-98 Apr-02 Apr-06 Apr-10 Apr-14 Apr-18
Chart 5. Chart 6.
Household labour income off lows … … but jobs momentum slows early in 2018
% ann % ann % ann % ann
16 16 * smoothed
nominal 5 Employment, %yr* Catch-up in 2017 5
14 Labour income 14 3 month chg, annls'd*
12 National income (nominal GDP) 12 4 4
10 10 3 3
8 8 2 2
6 6
1 1
4 4
0 0
2 2 2018 loss
of momentum
0 0 -1 -1
Sources: ABS, Westpac Economics Sources: ABS, Westpac Economics 2016 Federal election impact
-2 -2 -2 -2
Mar-84 Mar-92 Mar-00 Mar-08 Mar-16 May-06 May-09 May-12 May-15 May-18
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
5Westpac Coast-to-Coast June 2018
States overview
Domestic final demand Nationally, domestic demand grew by 3.2% in the year to
March 2018, strengthening from 2.3% a year earlier.
% ann % ann
8 8
Robust economic conditions are evident across most states,
6 6
4.5 4.6 4.9 particularly NSW and Victoria who are benefitting most
3.7 3.9 3.9
4 3.0 3.1 3.2 3.0 4 from low interest rates, a lower dollar, expansionary fiscal
2.3
2
2.1
2
policy and strong global growth which is boosting services.
0.8
0 0
Victoria continues to the lead the way, at a time of rapid
-2 -2 population growth, with demand growth lifting to a near 5%
-4 Mar-17 yr Mar-18 yr -4 annual pace and averaging a brisk 4.4% over the past four
years. Above trend demand growth is also evident in NSW,
-6 -6.7 -6 lifting to 3.7%. Tasmania has enjoyed the strongest two year
Sources: ABS, Westpac Economics
-8 -8 period of growth since before the GFC, boosted by stronger
WA SA Qld Aus NSW Tas Vic conditions globally and across the mainland.
A reduced drag from the mining investment wind-down
is key to the turnaround in WA, with annual domestic
final demand lifting to 0.8% from -6.7% a year ago. In Qld,
demand growth is a robust 3.1%, with SA lagging at 2.1%.
Consumer spending, per capita Brisk public demand growth, a lift in business investment
across the non-mining economy, centred on construction,
% ann % ann and exports are key growth drivers.
Latest 1990s avg Post GFC avg
3 3 However, consumer spending remains constrained by weak
wages growth and high household debt levels, a force that
will likely weigh on the outlook in our view. These dynamics
2 2 are evident across the states, even more so in the mining
states of WA and Qld, where compositional shifts in the
labour market are dampening average wages growth. Over
1 1 the past year, consumer spending per capita is a sluggish
0.7% in Qld and 0.9% in WA.
0
Sources: ABS, Westpac Economics
0 Nationally, consumer spending per capita is 1.3% over the
NSW Vic Qld WA Aus past year, a fraction above the post GFC average of 1.2%,
but well below the 1990s average of 2.2%. Victoria, not
surprisingly, is tracking above the national average, with
annual per capita spending at 1.5%, a clear notch above
the post GFC average for the state of 1.1% but also still well
below the 1990s average.
Growth outlook by state: GSP The economic outlook is robust in the view of the states.
% chg % chg The weighted average of the state budget forecasts points
4 3.5
3.8 4 to growth nationally at around 2.8% for each of the three
3.3
3.0 3.0 3.0 years 2017/18 to 2019/20. At the margin, we see risks tilted
3 2.8 2.8 2.8 2.8 2.8 2.8 2.7
2.6 2.7 3
2.3 2.3 2.3 2.3
2.5 to the downside (see forecast table page 25). Notably, the
2.0
2 2 states are less upbeat than the RBA and Federal Treasury,
who expect growth nationally to lift to 3%, 3% plus.
1 1
0 0 Victoria and NSW both assess that real output growth
-1 -1 was above trend in 2017/18, at 3.0%, and both anticipate a
2017/18f 2018/19f 2019/20f Westpac
Forecasts: state governments f/cs moderation to 2.75% in 2018/19 and in 2019/20. The cooling
-2 -2 of the housing sector after an extended and strong upswing
Sources: state budgets, ABS, Westpac Economics
-3 -3 will weigh on the outlook. We concur.
NSW Vic SA Tas Qld WA Aus
WA expects output to rebound in 2017/18, +2.5%, after
a 2.7% fall in 2016/17, and to then strengthen to 3.25% in
2018/19 - on an emerging stabilisation in demand and a lift
in LNG exports. Qld expects growth to improve to 3.0% in
2018/19 and then moderate to 2.75% in 2019/20.
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
6Westpac Coast-to-Coast June 2018
States overview
Chart 1. Chart 2.
State final demand, contributions State jobs markets: a mixed start to 2018
ppts ’ann Contributions to year end growth, Mar ’18 ppts ’ann index index
115 Dec ’12 = 100 115
Public demand Business investment Sources: ABS, (*share of total
6 Housing Consumption
Westpac Economics 6 WA (11%)
employment)
Vic (26%)
NSW (32%) Qld (20%)
110 110
4 4 Tas (2%) SA (7%)
Jan ’17
105 105
2 2
Jan ’17
0 0 100 100
3.7% 4.9% 3.1% 2.1% 3.9% 3.2%
0.8% Sources: ABS, Westpac Economics
-2 -2 95 95
NSW Vic Qld WA SA Tas Aus May-12 May-16 May-12 May-16
Chart 3. Chart 4.
Dwelling approvals: off highs, but not in Vic Dwelling prices: housing markets cool
’000 6 month sum, annualised ’000 % 6mth growth rates, annualised %
90 90 40 40
Sydney Melbourne Brisbane Perth
80 Vic NSW SA 80 * all dwellings, s.a.
30 30
70 Qld WA Tas 70
60 60 20 20
50 50
10 10
40 40
30 30 0 0
20 20
-10 -10
10 10
Sources: ABS, Westpac Economics Sources: CoreLogic, Westpac Economics
0 0 -20 -20
Apr-03 Apr-09 Apr-15 Apr-03 Apr-09 Apr-15 May-06 May-08 May-10 May-12 May-14 May-16 May-18
Chart 5. Chart 6.
Non-residential building approvals lift Public construction: expanding work pipeline
$bn Private: 12 month sum $bn $bn Non-residential building + infrastructure $bn
12 12 16 6
NSW Australia: +12%yr
+11%yr
Vic 14 NSW Qld Vic WA SA Tas
10 10 5
SA WA Qld
12
+1%yr
8 8 4
10
6 6 8 3
+23%yr
6
4 4 2
+22%yr
4
2 2 1
+5%yr 2
Sources: ABS, Westpac Economics Sources: ABS, Westpac Economics
0 0 0 0
Apr-08 Apr-14 Apr-08 Apr-14 Dec-07 Dec-11 Dec-15 Dec-07 Dec-11 Dec-15
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
7Westpac Coast-to-Coast June 2018
Employment and activity: by state
Chart 1. Chart 2.
NSW: jobs & household demand Victoria: jobs & household demand
% ann % ann % ann % ann
Sources: ABS, Westpac Economics
6 6
8 quarter average
8 quarter
average
Jobs, latest:
Q2(e) 2.0%yr
6 4 6 4
4 4
2 2
2 2
0 0 0 0
Jobs, latest:
-2 Q2(e) 3.4%yr -2 Household demand, adv 2 qtrs, lhs
Household demand, adv 2 qtrs, lhs -2 -2
-4 -4 Jobs, qtr avg, rhs
Jobs, qtr avg, rhs Sources: ABS,
Westpac Economics
-6 -4 -6 -4
Mar-94 Mar-98 Mar-02 Mar-06 Mar-10 Mar-14 Mar-18 Mar-94 Mar-98 Mar-02 Mar-06 Mar-10 Mar-14 Mar-18
Chart 3. Chart 4.
Qld: jobs & household demand WA: jobs & household demand
% ann % ann % ann % ann
12 8 16 8
Sources: ABS, Westpac Economics quarter average
Sources: ABS, Westpac Economics quarter average
10 Jobs, latest:
Q2(e) 2.8%yr
6 12 6
8 Jobs, latest:
Q2(e) 1.5%yr
6 4
8 4
4
2
2 4 2
0 0
0 0
-2
Household demand, adv 2 qtrs, lhs -2
-4 Jobs, qtr avg, rhs * smoothed -4 -2
Household demand, adv 2 qtrs, lhs
-6 -4 Jobs, qtr avg, rhs
Mar-94 Mar-98 Mar-02 Mar-06 Mar-10 Mar-14 Mar-18 -8 -4
Mar-94 Mar-98 Mar-02 Mar-06 Mar-10 Mar-14 Mar-18
Chart 5. Chart 6.
SA: jobs & household demand Tasmania: jobs & household demand
% ann % ann % ann % ann
8 5 10 6
Sources: ABS, Westpac Economics quarter average Sources: ABS,
6 4 8 Westpac Economics
3 4
6
4
2 4
2
2 1 2
0 0 0 0
-2 -1 -2
-2 -2
-4
-4
Household demand, adv 2 qtrs, lhs -3 -6 Jobs, latest:
Jobs, latest: Household demand, adv 2 qtrs, lhs -4
-6 Jobs, qtr avg, rhs Q2(e) 2.8%yr
-4 -8 quarter
Q2(e) 0.6%yr
average
Jobs, qtr avg, rhs
-8 -5 -10 -6
Mar-94 Mar-98 Mar-02 Mar-06 Mar-10 Mar-14 Mar-18 Mar-94 Mar-98 Mar-02 Mar-06 Mar-10 Mar-14 Mar-18
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
8Westpac Coast-to-Coast June 2018
Employment by industry: NSW & Victoria
The labour markets of NSW and Victoria experienced Victoria is experiencing well above trend population
robust employment gains during 2017 and into 2018, growth, at 2.3% in 2017 and a cumulative increase of 9.5%
consistent with buoyant economic conditions. over the past four years. This has been associated with
sustained strength in employment, which increased by
In NSW, employment surged 3.7% in 2017, in part a catch- 2.8% in 2017 and climbed 13.0% over the past four years.
up following a gain of only 0.3% in 2016, which represented Momentum has continued into 2018, with jobs growth
a significant undershoot, impacted by uncertainty around running at 2.1% annualised.
the July 2016 Federal election. In 2018, jobs growth to date
is running at a still above par 1.9% annualised. Construction is again a stand-out, boosted by public
infrastructure projects, with employment in the
By industry, strength is reasonably broadly based. sector jumping 24% since the end of 2016. Hospitality
Health and education are advancing at a brisk pace, employment has also had a stellar run, expanding by 15%
following a temporary consolidation in health during since the end of 2015, in response to strong population
2016. Construction employment has leapt 23% since the growth and with service exports (both tourism and
start of 2016 as work in the sector expands, led by public education) a growth engine. The health sector, as evident
infrastructure projects. There are positive spill-over effects across the nation, is a key jobs creator, while professional
to sectors such as manufacturing. services is up strongly over the past year, up 8%.
Chart 1. Chart 2.
NSW: employment by sector Victoria: employment by sector
annual change, ’000 annual change, ’000
Retail Construction
Health & education Leisure & hospitality Sources:
ABS,
Construction Wholesale & transp. Westpac
Economics
Finance & real estate Business services
Manufacturing Agriculture
Leisure & hospitality Manufacturing Q1, Q2 '17
Q1, Q2 '17
Utilities Retail
Q1, Q2 '18
Wholesale & transp. Q1, Q2 '18 Mining
Business services Utilities
Mining Sources: Finance & real estate
ABS,
Agriculture Westpac Government
Government Economics Health & education
-30 -20 -10 0 10 20 30 40 50 60 -30 -20 -10 0 10 20 30 40 50 60 70
change in employment change in employment
Chart 3. Chart 4.
NSW employment by sector Victoria employment by sector
ppts Contributions to yr end growth* ppts ppts Contributions to yr end growth* ppts
Goods prod'n, distb'n Education, health, gov't 5 Goods prod'n, distb'n Education, health, gov't 5
5 5 Business services Consumer * smoothed
Business services Consumer * smoothed
4 4
3 3 3 3
2 2
1 1
1 1
0 0
-1 -1
-1 -1
Sources: ABS; Westpac Economics Sources: ABS; Westpac Economics
-3 -3 -2 -2
Jun-08 Jun-10 Jun-12 Jun-14 Jun-16 Jun-18 Jun-08 Jun-10 Jun-12 Jun-14 Jun-16 Jun-18
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
9Westpac Coast-to-Coast June 2018
Employment by industry: Qld & WA
The Qld jobs market enjoyed a hiring burst in 2017, with Perhaps not surprisingly, in the mining state of WA the
employment increasing by an exceptional 4.4%. This more labour market also experienced a setback in 2016, with
than corrected for a sizeable 1.1% decline in 2016. Recall employment contracting by a sharp 2.3%. As commodity
that at the start of 2016, commodity prices had slumped prices rebounded it became clear that the cost cutting had
to historic lows (a move that has subsequently been been overdone. Employment jumped in 2017, up by 3.9%.
reversed), squeezing mining sector cash flows and denting However, it has been a soft start to 2018, with employment
revenue for the state government. Over the initial months down by 0.2% over the initial five months.
of 2018, the jobs market has cooled, with employment
increasing at a 1.0% annualised pace. By industry, employment strength in 2017 was
particularly evident in the health and education sectors,
The key health sector has contributed to the recent while agriculture enjoyed a better year. Construction
employment profile for Qld, with weakness in 2016 employment advanced in 2017, as work on the remaining
followed by a sharp surge in 2017. Construction sector gas projects nears completion. Hospitality employment
employment rebounded sharply in 2017, with a diminished levels continue to trend higher. In 2018, employment
drag from the mining investment cycle. The agriculture conditions have been mixed by industry, with a pull-back
sector also had a good year in 2017. While in 2018, the evident across construction and retail, partially offset by a
softer tone is largely centred on the consumer sectors. turnaround in mining and manufacturing.
Chart 1. Chart 2.
Queensland: employment by sector Western Australia: employment by sector
annual change, ’000 annual change, ’000
Health & education Health & education
Manufacturing Manufacturing
Business services Mining
Retail Government
Agriculture Utilities
Utilities Q1, Q2 '17 Agriculture Q1, Q2 '17
Mining Q1, Q2 '18 Leisure & hospitality Q1, Q2 '18
Wholesale & transp. Business services
Construction Construction
Finance & real estate Sources:
Finance & real estate
Sources:
Leisure & hospitality ABS, Wholesale & transp. ABS, Westpac
Westpac Economics
Government Economics Retail
-30 -20 -10 0 10 20 30 40 50 60 70 -20 -10 0 10 20 30 40
change in employment change in employment
Chart 3. Chart 4.
Qld employment by sector WA employment by sector
ppts Contributions to yr end growth* ppts ppts Contributions to yr end growth* ppts
6 6
Goods prod'n, distb'n Education, health, gov't 8 Goods prod'n, distb'n Education, health, gov't 8
5 5
Business services Consumer * smoothed Business services Consumer * smoothed
4 4 6 6
3 3
4 4
2 2
1 1 2 2
0 0 0 0
-1 -1
-2 -2
-2 -2
Sources: ABS; Westpac Economics Sources: ABS; Westpac Economics
-3 -3 -4 -4
Jun-08 Jun-10 Jun-12 Jun-14 Jun-16 Jun-18 Jun-08 Jun-10 Jun-12 Jun-14 Jun-16 Jun-18
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
10Westpac Coast-to-Coast June 2018
Employment by industry: SA & Tasmania
South Australia's labour market moving broadly sideways Tasmania's labour market appears to run 'hot and cold', as
through the five years 2011 to 2015, impacted by structural suggested by the official data - although we caution about
headwinds, with employment up only 0.8% over the period. larger measurement errors for a small economy. Conditions
Since then, employment has trended higher, up 0.9% in rebounded sharply in 2014, with employment surging 5.6%,
2016 and increasing by 1.7% in 2017, with growth tracking reversing losses experienced during the three previous
at 3.8% annualised over the initial five months of 2018. years. After a mixed performance over 2015 and 2016,
the jobs market took a further step higher in 2017, with
The health sector, as nationally, is a key growth sector, employment surging 3.8%. So far in 2018, employment has
with employment levels expanding to provide much declined by 0.4%, representing a modest consolidation.
needed additional services. The construction sector has
experienced a lift since the start of 2016, boosted by Since the end of 2016, stronger economic conditions in
the upswing in public infrastructure, again mirroring the the state have driven employment gains across a range of
national trend. Employment is also expanding in education sectors, including: construction, boosted by a lift in home
and household services, namely arts and recreation. building and public investment; mining, supported by
However, some headwinds persist, with manufacturing higher prices and increased demand; household services,
employment declining further over the past couple of on stronger consumer spending and tourism; professional
years impacted by the closure of the auto sector. business services; and the health sector.
Chart 1. Chart 2.
South Australia: employment by sector Tasmania: employment by sector
annual change, ’000 annual change, ’000
Health & education Leisure & hospitality
Agriculture Construction
Leisure & hospitality Finance & real estate
Business services Mining
Finance & real estate Health & education
Government Q1, Q2 '17 Utilities Q1, Q2 '17
Utilities Q1, Q2 '18 Retail
Q1, Q2 '18
Wholesale & transp. Government
Construction Agriculture
Retail Sources: Wholesale & transp. Sources:
ABS, ABS,
Mining Westpac Manufacturing Westpac
Manufacturing Economics
Business services Economics
-12 -8 -4 0 4 8 12 16 -3 -2 -1 0 1 2 3 4 5 6
change in employment change in employment
Chart 3. Chart 4.
South Australia employment by sector Tasmania employment by sector
ppts Contributions to yr end growth* ppts ppts Contributions to yr end growth* ppts
Goods prod'n, distb'n Education, health, gov't
8 Goods prod'n, distb'n Education, health, gov't
8
6 6
Business services Consumer * smoothed 6 Business services Consumer * smoothed 6
4 4
4 4
2 2
2 2
0 0
0 0
-2 -2 -2 -2
-4 -4 -4 -4
Sources: ABS; Westpac Economics Sources: ABS; Westpac Economics
-6 -6 -6 -6
Jun-08 Jun-10 Jun-12 Jun-14 Jun-16 Jun-18 Jun-08 Jun-10 Jun-12 Jun-14 Jun-16 Jun-18
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
11Westpac Coast-to-Coast June 2018
NSW: construction and exports positives ...
NSW state final demand: above trend growth The NSW economy has promptly returned to above trend
growth against the backdrop of a number of key positive
% ann % ann fundamentals domestically and globally. However, there are
8 8
headwinds, particularly around the consumer and housing.
NSW Australia
6 6
State final demand grew by 3.7% over the past year and
averaged 3.4% growth over the past five years, a little in
4 4 excess of the long-run average of 3.2%. A long overdue
upswing in home building activity, as well as buoyant public
2 2 demand have been key growth drivers. This has led to a lift
Historic avg:
NSW, 3.1% ann
in business investment, which has further upside.
0 0
A growing population, driven by net international migration,
Sources: ABS, Westpac Economics
-2 -2 is another key dynamic, although not to the extend evident
Mar-02 Mar-06 Mar-10 Mar-14 Mar-18 in Victoria. NSW's population growth is 1.5% currently
and has averaged 1.5% over the five years 2013 to 2017,
well above the state's long-run average of 1.1%. With the
population increasing by 560,000 over this five year period,
and continuing to rise, there are growing demands to
expand the states infrastructure.
NSW: contributions to state final demand The upswing in business investment is particularly apparent
in the construction segments. Private infrastructure
activity, which wound-down after a surge in mining sector
1.5
Sources: projects, has rebounded by 80% over the past two years,
Consumption ABS,
1.8 Westpac directly adding ½ppt to growth each year. The lift in work
Economics
has been centred on power generation and road projects.
0.4
Housing 0.1
yr to Mar 17 Private non-residential building activity is off the highs of
-0.1
Investment 0.9 yr to Mar 18 2016 but is set to expand. Approvals in the year to April
are 11% above a year ago and 25% above two years earlier,
1.0
Public 1.0 with gains across offices, warehouses, and social building.
3.0
Final demand 3.7 Consumer spending while solid remains constrained.
Spending averaged 2.9% growth over the past five years,
-1 0 1 2 3 4 including in 2017, boosted by rising population. On a per
ppts capita basis, spending is a more modest 1.4%, broadly in
line with the post GFC average for the state of 1.5% but
below the 1990s average of 1.9%. Weak wages growth, high
debt levels and now declining residential property prices
will likely weigh on the outlook.
NSW economic performance & outlook NSW’s economic outperformance, which began in 2014-15,
continued in 2017/18 with the state government expecting
% chg % chg 3% economic growth. Household consumption, public
8 8
infrastructure, dwelling construction and service exports
GSP State demand Gov't have been the key drivers of this strong performance.
6 GSP:
f/cs 6
2.6% avg.
The state government anticipates that output growth will
4 4 moderate a notch to 2¾% in 2018/19 and 2019/20. The
turning down of dwelling construction and constrained
2 2 household consumption are headwinds. Growth drivers
are expected to rotate towards business investment and
0 0 more broad-based strength in exports. We are in broad
agreement with this view, and note a lower Australian
-2
Sources: ABS, NSW government, Westpac Economics
-2 dollar would provide a further fillip to the export sector.
'90/91 '94/95 '98/99 '02/03 '06/07 '10/11 '14/15 '18/19(f)
Public investment is likely to be more supportive of
activity over the coming two years, reflecting a lower
than expected outcome for 2017/18 and with the state
government continuing to announce projects, thereby
adding to the investment pipeline (see chart overleaf).
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
12Westpac Coast-to-Coast June 2018
... housing slowing, constraining consumer
Chart 1. Chart 2.
NSW: a population surge NSW public investment: budget forecasts
% ann % ann $bn $bn
24 24
2.2 2.2 Budget 2014
Nominal
NSW: 1.5% (+117k yr)
Budget 2015
1.8 Aust: 1.6% 1.8 20 Budget 2016 20
Budget 2017
1.4 1.4 Budget 2018
16 16
1.0 1.0
NSW LR avg: 1.1%yr
12 Budget 2018 12
0.6 0.6 Investment undershoot, 2017/18
Upgrades outyears
Sources: budget papers,
Sources: ABS, Westpac Economics Westpac Economics
0.2 0.2 8 8
Dec-85 Dec-93 Dec-01 Dec-09 Dec-17 2012/13 2014/15 2016/17 2018/19 2020/21 2022/23
Chart 3. Chart 4.
NSW consumer spending Dwelling prices: housing markets cool
% ann % ann % 6mth growth rates, annualised %
10 10 40 40
Labour income real Consumption: Sydney Melbourne Brisbane Perth
2018 Q1: 0.4%qtr, 2.9%yr
8 30 year avg: 3.0%yr
8 30 * all dwellings, s.a.
30
Consumption
6 6
20 20
4 4
10 10
2 2
0 0
0 0
LR avg: 3.0%yr
-2 -2 -10 -10
Sources: ABS, Westpac Economics Sources: CoreLogic, Westpac Economics
-4 -4 -20 -20
Mar-98 Mar-02 Mar-06 Mar-10 Mar-14 Mar-18 May-06 May-08 May-10 May-12 May-14 May-16 May-18
Chart 5. Chart 6.
New dwelling activity moderating NSW: non-res’ building approvals climb
% ann % ann $bn 12 month sum $bn
6 16
60 New dwelling investment (lhs) # smoothed 60 Private
Public Private
Social
Approvals, adv 2qtrs# (rhs) Total +12%yr
14
5 Retail
40 40 12
Offices
4
20 20 10
3 8
0 0
+11%yr
6
-20 -20 2 +22%yr*
4
-40 -40 1
2
Sources: ABS, Westpac Economics
Sources: ABS, Westpac Economics * Gains led by ed’n
-60 -60 0 0
Mar-98 Mar-02 Mar-06 Mar-10 Mar-14 Mar-18 Apr-08 Apr-14 Apr-08 Apr-14
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
13Westpac Coast-to-Coast June 2018
Victoria: capacity-building investment ...
Victorian state demand: well above trend growth Victoria's outperformance has carried into early 2018. At just
in excess of 3%yr, output growth has been robust (albeit
%ann %ann flattered by brisk population growth) and notably stronger
10 10 than the rest of Australia. The state's growth over the last
8 8 four years has been 0.7ppts above that seen nationally.
6 6
A sustained migration-led surge in population growth
4 4
continues to be the main driver with the state's education
2 2 and wider services sector key supports. Population growth
0 0 is 2.3% currently, well above the national figure of 1.6%.
-2 -2
Having already substantially boosted housing construction,
-4 Victoria Australia -4 the population surge is seeing a broader lift in infrastructure
Sources: ABS, Westpac Economics
-6 -6 and capacity-building investment. An expected moderation
Mar-94 Mar-98 Mar-02 Mar-06 Mar-10 Mar-14 Mar-18 in housing activity now looks likely to come through a little
later in the piece, although prices have softened notably.
Vic state demand growth picked up sharply again in the
March quarter, a 1.9% jump taking the annual rate to 4.9%,
slightly above the 4.5% average over the past three years.
Vic: contributions to state final demand Victorian consumer spending is up 3.9% over the past year,
notwithstanding a modest rise of 0.5% in Q1. Labour income
gains remain supportive. Jobs growth having eased back from
2.0 Sources: ABS, the red-hot 4.4% increase in 2016, is robust, at 2.8% for 2017
Consumption Westpac Economics
2.3 and running at 2.1% annualised over the initial months of 2018.
0.5
Housing -0.2 The state's housing market has continued to cool, growth in
yr to Mar 17
0.7
Melbourne dwelling prices slowing to just over 1%yr in June
Investment yr to Mar 18 from a double-digit pace a year ago. Auction markets point
0.8
to a further softening with clearance rates moving below
Public 1.3 average in June. Although 'wealth effect' boosts look to
2.0
have been muted through the price surge, the turnaround is
4.6 likely to weigh on consumer demand at the margin.
Final demand 4.9
-1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 Business investment while choppy is broadly supportive, up
ppts 7.3% over the past year. The work pipelines look positive
for both non-residential building and private infrastructure
work, consistent with the demands of a fast growing
population. Business surveys indicate capacity utilisation is
somewhat tighter in Victoria than the rest of Australia.
State government infrastructure investment Government spending has been a strong support for
activity over the last year. Total spending rose 9.8% over
$bn $bn the year to March, adding 2ppts to state final demand – a
15 15
Sources: ABS, Vic Gov't, Westpac Economics Gov't fcsts bigger contribution than business and housing investment
combined. Public investment has been particularly strong,
12 12 surging 23%yr.
9 9 The public sector will remain a strong support for both
activity and employment through 2018/19. The 2018-19
6 6 Victorian state budget showed public infrastructure work
is set to rise further over the next year before winding
3 3 down. That wind down may not eventuate if projects such
as the proposed airport rail link go ahead – the Federal
0 0 Budget earmarked $5bn for this contingent on a matching
10/11 12/13 14/15 16/17 18/19f 20/21f contribution from the Victorian state government.
The state continues to run a solid operating surplus,
maintaining its 'AAA' rating. Budget measures centred on
health and education, with some funding for road upgrades.
A state election is due to be held by the end of 2018.
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
14Westpac Coast-to-Coast June 2018
... lifts as housing activity slows
Chart 1. Chart 2.
Vic household income & spending well balanced Vic labour market
%ann %ann % ann %
10 10 6 13
Labour income Consumption *real Vic (lhs) Aust. (lhs) Unemploy rate, Vic (rhs) Vic Govt
8 8 5 fcs
12
4 11
6 6
3 10
4 4 2 9
2 2 1 8
0 0 0 7
-1 6
-2 -2
-2 5
-4 -4 -3 4
Sources: ABS, Westpac Economics Sources: ABS, Westpac Economics
-6 -6 -4 3
Mar-06 Mar-09 Mar-12 Mar-15 Mar-18 May-95 May-99 May-03 May-07 May-11 May-15 May-19
Chart 3. Chart 4.
Vic housing construction downturn delayed Melbourne house prices
%ann %ann % ann % ann
30 30
Melbourne capital cities avg.
60 New dwelling activity Approvals, adv 2qtrs 60
40 40 20 20
20 latest excl. 20
‘large 10 10
projects’
0 0
0 0
-20 -20
Sources: ABS, Westpac Economics Sources: CoreLogic, Westpac Economics
-40 -40 -10 -10
Mar-94 Mar-98 Mar-02 Mar-06 Mar-10 Mar-14 Mar-18 Jun-98 Jun-02 Jun-06 Jun-10 Jun-14 Jun-18
Chart 5. Chart 6.
Vic’s non-res construction pipeline Vic population growth: 2.3%yr currently
$bn non-res. building infrastructure $bn ’000s ’000s
9 9 100 100
Approvals Net overseas migration*
Commencements
8 Work done 8 Natural increase
Work done 80 80
Net interstate migration*
7 Yet to be done 7
Yet to be done *Westpac estimate including Census discrepancy
60 60
6 Sources: 6
ABS,
5 Westpac 5 40 40
Economics
4 4 20 20
3 3
0 0
2 2
1 1 -20 -20
Sources: ABS, Westpac Economics
0 0 -40 -40
Dec-95 Dec-03 Dec-11 Dec-95 Dec-03 Dec-11 Dec-85 Dec-93 Dec-01 Dec-09 Dec-17
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
15Westpac Coast-to-Coast June 2018
Queensland: government's aspirations ...
Qld domestic demand has rebounded The past two years have seen Queensland's fortunes
turnaround. Having declined by a cumulative 6.5% over
% ann % ann the two years to December 2015, domestic demand in Qld
15 15
consequently rose by 3.5%yr in 2016 then 2.8%yr in 2017. A
Qld Australia
12 12 further 0.5% gain in Q1 2018 essentially rubbed out the last
9 9 of the 2014/15 decline.
6 6
Public demand has been particularly important in this
3 3 resurgence, with investment in infrastructure and services
0 0 undertaken by the Government becoming a leading light
for the growth agenda. Highlighting this, at March 2018,
-3 -3
public demand was 5.0% higher over the year.
-6 -6
Sources: ABS, Westpac Economics
-9 -9 The recent 2018–19 Budget emphasises that the public
Mar-98 Mar-02 Mar-06 Mar-10 Mar-14 Mar-18 sector will remain a strong positive for the state going
forward, with $46bn in infrastructure spending slated for
the four years to 2021/22, along with continued investment
in front-line essential services – health and education.
Qld: contributions to state final demand The intent of the Qld government, to build an economy
fit for the needs of tomorrow, looks to be bearing fruit.
Having fallen to a multi-decade low of 1.2%yr at September
Sources: ABS,
1.1 2015, population growth has since rallied back to 1.7%yr
Consumption Westpac
Economics. 1.3 at September 2017. This result has come about owing to a
resurgence in both international and interstate migration.
-0.4
Housing -0.2
Another key support for this turn in migration has been
1.1
Investment yr to Mar 17 that those who desire employment have been able to
0.8
yr to Mar 18 find it easily. Since November 2016, Qld's unemployment
1.1
Public 1.2
rate has been broadly unchanged while the share of the
population employed has risen by 1.5ppts (at May 2018).
3.0
Final demand 3.1
The strength in employment growth over this period has
-3 -2 -1 0 1 2 3 4 fed through to incomes. Despite persistent weakness
ppts in hourly wage rates (as is the case elsewhere in the
nation), annual growth in Qld real labour incomes have
risen sharply, from –0.9%yr at Q2 2017 to 3.7%yr at Q1
2018. While this rate of growth won't be sustained, further
above-average gains are possible – if job growth persists.
Qld economic performance & outlook Population growth; incomes; housing affordability; and
confidence are all supportive of a lift in consumption
% chg % chg growth from the current sub-par 2.4%yr. Housing is more
10 10
of an open question however, with migration supportive,
8 GSP State demand GSP: 8 but offset by excess supply in key metro markets like
3.9% avg Brisbane. The full effect of macroprudential reforms is also
6 6 yet to be felt.
4 4
On business investment, the Australian dollar and external
2 2 demand remain supportive of tourism and education;
0 0 and if the consumer firms, then so should investment in
Gov't related sectors. As has been the case across the nation,
-2 f/cs -2 equipment investment in these sectors has been a key
Sources: ABS, Qld government, Westpac Economics.
-4 -4 area of weakness, even as engineering and non-residential
'90/91 '94/95 '98/99 '02/03 '06/07 '10/11 '14/15 construction grew at a robust pace (11%yr and 8.0%yr
respectively). For Qld, nothing is guaranteed, but the state
is in a much stronger position today than at any point since
the heady days of the mining investment boom.
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
16Westpac Coast-to-Coast June 2018
... strong, set to buoy optimism and growth
Chart 1. Chart 2.
Qld net migration has rallied off historic lows Qld: employment’s share of population up
’000s ’000s % %
70 70
Natural increase Sources: ABS, Westpac Economics
65 10
60 Net overseas migration 60
Net interstate migration
50 50 63 8
40 40 61 6
30 30
59 4
20 20
57 employment to population ratio*, lhs 2
10 10
Sources: ABS, Westpac Economics
unemployment rate*, rhs * trend
0 0 55 0
Dec-85 Dec-93 Dec-01 Dec-09 Dec-17 Feb-98 Feb-02 Feb-06 Feb-10 Feb-14 Feb-18
Chart 3. Chart 4.
Labour incomes have gained as a result Qld dwelling approvals remain at elevated level
% ann % ann ’000 mth, annls’d ’000 mth, annls’d
12 14 60 60
6 month sum
Labour income Total Houses
10 12
Consumption *real 50 L/R avg: 37k
50
8 period 10
averages
8 40 40
6
6
4 30 30
4
2
2 20 20
0 0 RBA easing
10 cycles 10
-2 -2
Sources: ABS, Westpac Economics. Sources: ABS, RBA, Westpac Economics
-4 -4 0 0
Mar-05 Mar-07 Mar-09 Mar-11 Mar-13 Mar-15 Mar-17 Jan-98 Jan-02 Jan-06 Jan-10 Jan-14 Jan-18
Chart 5. Chart 6.
Consumer & business confidence positive Qld business investment: in modest uptrend
index consumer business net bal. $bn $bn
130 30
Sources: ABS, Westpac Economics. Rose 179% from
10 end-2010 to 10
120 20 March 2013;
Equipment down 69% since.
110 10 8 8
Non-residential building
100 0 6 Infrastructure 6
90 -10
4 4
80 -20
Qld Australia 2 2
70 smoothed -30
Sources: Westpac-MI,
NAB, Westpac Economics.
60 -40 0 0
2009 2013 2017 2008 2011 2014 2017 Mar-98 Mar-02 Mar-06 Mar-10 Mar-14 Mar-18
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
17Westpac Coast-to-Coast June 2018
Western Australia: recovery still anaemic ...
WA state demand: deep contraction ends With a large multi-year decline in mining investment having
finally largely run its course, the WA economy has swung
% ann % ann into recovery over the last year although growth remains
20 20
WA Australia anaemic and momentum is 'patchy'.
16 16
12 12 On the positive side, the turnaround is already lifting
household labour incomes, a welcome turnaround from four
8 WA govt fcs* 8
years of decline. Key commodity prices have held up better
4 4 than expected and mining investment is also showing some
0 0 slight positives, albeit nothing like the boom years.
-4 -4
Against this, the latest labour market data suggests
-8 Sources: WA 2018-19 Budget,
-8 a strong initial rebound in 2017 has given way to a
ABS, Westpac Economics * year average
-12 -12 consolidation early in 2018, while housing markets have
Mar-92 Mar-96 Mar-00 Mar-04 Mar-08 Mar-12 Mar-16 Mar-20 yet to stabilise. Other drivers such as population flows and
fiscal policy are presenting less of a headwind to growth
but are not providing much in the way of support, although
public spending has been a positive for state final demand
over the last year.
WA: contributions to state final demand WA saw a pull-back in state demand in Q1 following three
quarters of solid gains – the 1.1% decline reversing over half
of the 1.9% gain over the previous nine months. Annual
Sources: ABS, Westpac Economics.
0.2 growth remains slow at 0.8%yr but markedly better than
Consumption
0.9 the average 3% contraction seen over 2013–17.
yr to Mar 17
-1.2
Housing yr to Mar 18 0.0 Some of the weakness in Q1 may be a tail-end effect from
the wind-down in mining investment as work on key gas
-6.0
Investment -1.1 projects nears completion. Total business investment
contracted 5.0% in the quarter and is still contracting in
0.3
Public 0.9
annual terms (–5.6%yr). With little support from other
sectors, variations in mining investment still dominate.
Final demand -6.7
0.8
Despite the weak quarter, the forward view is actually
-10 -8 -6 -4 -2 0 2 looking more positive. Key commodity prices have
ppts continued to hold up, iron ore around US$65/t and energy
prices generally firm. Notably, major producers have also
greenlighted a few new iron ore projects in recent months
although the scale is small compared to the boom years.
WA economic performance & outlook Household consumption slipped 0.1% in Q1 although
annual growth at 1.7% is still much firmer than a year ago.
% chg % chg Labour incomes have picked up strongly, tracking at
16 16
GSP State demand 4.6%yr. However, this is unlikely to sustain near term with
12 12
employment consolidating early in 2018 suggesting the
GSP:
4.8% avg. strength in 2017 was an 'initial rebound'. The pass through
8 Gov't 8 to spending is also likely being muted by a rebuild in
f/cs
savings after a large multi-year decline.
4 4
Housing activity held flat over the year to March with any
0 0 uptick still looking some way off – approvals weakening
again in recent months, and population flows still
-4 -4
unsupportive. Perth dwelling prices have continued to slip
-8
Sources: ABS, WA Gov't, Westpac Economics
-8 lower albeit at a slightly slower pace.
'90/91 '94/95 '98/99 '02/03 '06/07 '10/11 '14/15 '18/19(f)
The 2018-19 WA state budget provided a rare upgrade to
forecasts (albeit a small one). The state continues to chart
a return to surplus by 2021 through expenditure restraint.
Public infrastructure investment is continuing to rise though
led by the METRONET rail project with spending likely to
peak in the 2018-19 financial year.
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
18Westpac Coast-to-Coast June 2018
... and patchy
Chart 1. Chart 2.
WA households: incomes improve Jobs market: initial rebound?
% ann % ann % ann %
8 14
15 labour income period 15 Sources: ABS, Westpac Economics. *trend; ^year average
consumption averages 6
12 12 12
*real WA Govt^
4
9 9 10
2
6 6
0 8
3 3
-2
6
0 0 -4 WA jobs (lhs)
-3 -3 Aust jobs (lhs) 4
Mining boom MkII -6
MkI Un. rate, WA (rhs)
Sources: ABS, Westpac Economics
-6 -6 -8 2
Mar-92 Mar-96 Mar-00 Mar-04 Mar-08 Mar-12 Mar-16 May-90 May-94 May-98 May-02 May-06 May-10 May-14 May-18
Chart 3. Chart 4.
WA business investment WA’s population growth
$bn $bn % ann % ann
14 14
equipment
4.8 WA (0.8%yr, 21k) 4.8
contrib. international migration (0.6ppts, 14k)
12 non-residential building^ 12 4.2 4.2
contrib. inter-state migration (–0.5ppts, –13k)
engineering^ 3.6 WA Govt Budget forecasts 3.6
10 10
Aust (1.6%yr)
*real, new 3.0 latest 3.0
qtr
8 ^from Jun 2012, figures are 8
2.4 ann’d 2.4
estimates based on total pace
6 non-residential construction 6 1.8 1.8
1.2 1.2
4 Sources: ABS, Westpac Economics 4
0.6 0.6
2 2
0.0 0.0
Sources: ABS, Westpac Economics
0 0 -0.6 -0.6
Mar-96 Mar-00 Mar-04 Mar-08 Mar-12 Mar-16 Dec-01 Dec-05 Dec-09 Dec-13 Dec-17
Chart 5. Chart 6.
New home building: starting to stabilise House prices: Perth price declines moderate
% ann % ann % ann % ann
80 Sources: ABS, Westpac Economics
60 40 40
Sources: ABS; Westpac Economics
36 Perth 36
60 32 32
40 capital cities avg.
40 28 28
20 24 24
20 20 20
16 16
0 0
12 12
-20 8 8
-20 4 4
-40 0 0
New dwelling activity (lhs) -40
-60 -4 -4
Approvals, adv 2qtrs# (rhs) # smoothed -8 -8
-80 -60 -12 -12
Mar-98 Mar-02 Mar-06 Mar-10 Mar-14 Mar-18 Jun-98 Jun-02 Jun-06 Jun-10 Jun-14 Jun-18
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
19Westpac Coast-to-Coast June 2018
South Australia: private spark necessary ...
State final demand growth pulling back South Australia had a strong 2017, with annual growth of
5.2%yr reported. However, half of this gain came in the
% ann % ann first quarter, as major projects were completed. Since then,
momentum has been less inspiring. Come Q1 2018, activity
8 SA Australia 8
dipped 0.2%, bringing the annual rate back to a subdued
2.1%yr, with weakness centred in private demand.
6 Historic avg: 6
2.8% ann
4 4
Going forward, public demand is set to remain a key
support for growth, with some major energy projects
2 2
beginning construction, including the Lincoln Gap Wind
Farm and AGL’s Barker Inlet Power Station. However, state
0 0
demand cannot rely on public spending alone. As such, SA
is also seeking to tap external demand. This is hallmarked
-2
Sources: ABS, Westpac Economics.
-2
by an ambitious target for tourism expenditure of $8bn
Mar-02 Mar-06 Mar-10 Mar-14 Mar-18 by 2020. Adelaide's universities also offer an opportunity
to attract more education dollars, from interstate and
offshore. Tourism and education gains would aid net
migration – an area where SA continues to lag, particularly
Vic and Qld – and potentially food and beverage exports.
SA contributions to state final demand For private demand, new opportunities are certainly
needed to reinvigorate growth as support for household
demand from employment is abating. Employment gains
1.6
started to slow towards the end of last year and peaked
Consumption 1.5 in February 2018. The employment to population ratio has
since fallen 0.6ppts to 63.3% at May 2018, though that is
Housing 0.2 yr to Mar 17
0.1 above the 62.1% seen in early 2017.
yr to Mar 18
Investment Wage inflation weakness (seen across the country) had left
-0.8 1.6
job gains as the driver of household income growth. Now
Public 1.1 that SA employment has stagnated, households’ spending
1.4
power is under pressure. It is not surprising then that
Sources: ABS, 4.5 private consumption only managed to eke out a small 0.2%
Final demand Westpac 2.1
Economics. gain in Q1. Early signs for Q2 are not encouraging, with
-2 0 2 4 6 employment flat and nominal retail trade dipping 0.6% in
ppts April.
House price growth is also close to flat, 0.6%yr at May. Any
remnants of a 'wealth effect' on consumption from past
(moderate) gains are likely behind us.
SA economic performance & outlook Housing has also been a softer component of investment
of late, falling 1.6% in Q1 (+1.6%yr) as new building reversed.
% chg % chg Approvals had been more positive through 2017, but
8 8
meagre population growth is a significant headwind.
GSP State demand
6 6
GSP: Business investment is also weak, down 2.5% in Q1 and
2.1% avg Gov't
f/cs 6.8% over the year. The aftereffects of major manufacturing
4 4 closures are still being felt, as component suppliers adjust
or shut. Yet there is still opportunity to be had. SA can now
2 2 lay claim to being Australia’s first satellite manufacturer,
with Italy’s SITAEL launching a subsidiary in Adelaide.
0 0
So, while public spending will continue to aid SA growth
Sources: ABS, SA government, Westpac Economics.
-2 -2 for the foreseeable future, the state must make the best
'90/91 '94/95 '98/99 '02/03 '06/07 '10/11 '14/15 use of this investment by actively seeking out opportunities
where their competitive advantage lay. Education; tourism;
agriculture and niche manufacturing all hold promise, but
require action. Only then will employment, household
income and spending have an enduring foundation.
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
20Westpac Coast-to-Coast June 2018
... if enduring robust growth to be seen
Chart 1. Chart 2.
South Australia: public investment strong Business investment: stable, outlook uncertain
% ann demand public investment $bn qtr $bn $bn
General government Sources: 2.5 Equipment * * including computer software etc
ABS, 2.0 2.0
Westpac
12 Public corporations Economics Non-residential building
2.0
1.6 Infrastructure 1.6
6
1.5
1.2 1.2
0
1.0 0.8 0.8
* smoothed
-6 0.5
Private demand 0.4 0.4
Public demand *
Sources: ABS, Westpac Economics
-12 0.0 0.0 0.0
Mar-97 Mar-05 Mar-13 Mar-93 Mar-01 Mar-09 Mar-17 Mar-98 Mar-02 Mar-06 Mar-10 Mar-14 Mar-18
Chart 3. Chart 4.
Adelaide house prices have little momentum Dwelling approvals drifting lower
% 6mth growth rates, annualised % '000 '000
1.7 23
* all dwellings, annualised, SA* (lhs) Australia* (rhs)
30 30 21
seasonally adjusted 1.5
* smoothed, private
20 20 19
1.3
17
10 10 1.1
15
0.9
0 0 13
0.7
11
-10 -10
0.5 9
Sydney Melbourne Adelaide Perth
Sources: ABS, CoreLogic, Westpac Economics Sources: ABS, Westpac Economics.
-20 -20 0.3 7
May-10 May-11 May-12 May-13 May-14 May-15 May-16 May-17 May-18 Apr-98 Apr-02 Apr-06 Apr-10 Apr-14 Apr-18
Chart 5. Chart 6.
SA job surge topping out Weak population growth a lasting concern
% ann % ann % ann % ann
8 5 2.5 2.5
Sources: ABS, Westpac Economics quarter average Sources: ABS, Westpac Economics
6 4
3 2.0 SA Australia 2.0
4
2
2 1 1.5 1.5
0 0
-2 -1 1.0 1.0
-2
-4
Household demand, adv 2 qtrs, lhs -3 0.5 0.5
-6 regional migration
Jobs, qtr avg, rhs -4 schemes expanded
-8 -5 0.0 0.0
Mar-94 Mar-98 Mar-02 Mar-06 Mar-10 Mar-14 Mar-18 Dec-85 Dec-93 Dec-01 Dec-09 Dec-17
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
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