Lower interest rates boost southern states: Westpac's Andrew Hanlan
The Australian Bureau of Statistics has released the annual State Accounts. These provide annual estimates of output growth by state, Gross State Product. Quarterly estimates are not available.
The accounts for the 2015/16 financial year (July to June) confirm that the growth transition is continuing. The mining states of the north-west, Qld and WA, have slowed as construction work on major projects is progressively completed. The southern states have generally improved, benefitting from lower interest rates and a lower dollar.
The two most populous states, NSW and Victoria, topped the growth table in 2015/16, with both expanding at an above trend pace. NSW grew by 3.5%, strengthening from 2.6%, a result closely matched by Victoria, 3.3%, up from 2.6%.
In South Australia, output growth of 1.9% is a little below trend, while in Tasmania growth was a modest 1.3%.
Western Australia slowed further, moderating to 1.9%, down from 3.6% and well below the 5.8% result of two years earlier. Queensland managed a partial rebound, expanding by 2.0%, up from 1.2% in 2014/15 but still down on the 3.3% outcome for 2013/14.
NSW
The NSW economy grew by 3.5% in 2015/16, up from 2.6%, the strongest result in 16 years, since 1999/00 - just prior to the Sydney Olympics. The outcome was well above the state's long-run average of 2.5% and exceeded the state government's forecast of 2.75%.
Construction, real estate and financing together added 1.5ppts to growth in 2015/16, up from 0.9ppts the year prior. Positive spill-over effects contributed to stronger performances across a number of industries, including: public services (with state government revenue boosted by the housing boom); transport; wholesale; manufacturing; and communications. Service exports, benefitting from the sharply lower dollar, were also a growth engine, increasing by 12.5% in 2015/16 and adding 0.6ppts to growth, the strongest result since 1992/93 (excluding the Olympics year of 2000/01).
Victoria
The Victorian economy expanding by 3.3%, up from 2.6%, the fastest pace since 2007/08, before the GFC. That is above trend of 2.8% and exceeded the state government forecast of 3.0%.
Construction, real estate and finance together added 1.5ppts to growth in the year, up from 0.9ppts. A strengthening of conditions was evident across: retail; communications; transport; wholesale; and public services. Agriculture and manufacturing were areas of softness, both subtracting 0.2ppts. Service exports, having surged 15.4% in 2014/15, advanced by 4.0%.
Western Australia
In the West, conditions continue to moderate. Output grew by 1.9% in the past year, slowing from 3.6%. That is below trend, 4.3%, but above the state government forecast of 1.0%.
Construction subtracted 0.4ppts from growth, following a
drag of 0.3ppts the year prior, as work on major gas projects
is progressively completed. Negative spill-over effects contributed to contractions across a number of industries: transport; wholesale; professional services; admin services; and manufacturing. Mining added 1.9ppts to growth, although that was down from 2.5ppts the year prior and 2.9ppts in 2013/14.
Queensland
The Qld economy managed a partial rebound in 2015/16, with output growth recovering to 2.0%, up from 1.0% in 2014/15. The result was still below par, of 4.1%, and fell short of the state government forecast of 3.5%.
Construction fell at a slower rate with much of the work on gas projects already completed, subtracting 0.4ppts from growth after a chunky 1.7ppts drag in 2014/15. Manufacturing and professional services were areas of weakness, both subtracting 0.2ppts, in part due to negative spill-over effects from the mining downturn. Mining output added 0.6ppts to growth, up from 0.5ppts the previous year, as gas exports expand. Real estate was a bright spot, strengthening to add 0.3ppts to growth as the housing sector responded to lower rates. Public services experienced a strong year, adding 0.4ppts to growth, as the state increased public servant numbers.
South Australia
The South Australian notched up back-to-back years of moderate growth, expanding by 2.0% in 2014/15 and 1.9% in 2015/16. That is a little below the long-run average of 2.3% but above the state government forecast of 1.5%.
Construction, finance and real estate together made a solid contribution of 0.6ppts, up from 0.4ppts the year prior.
Mining bounced back, adding 0.2ppts, after a neutral impact in 2014/15. The rate of decline in manufacturing slowed, subtracting 0.1ppts, well below the peak drag of 0.6ptps in 2013/14. Household services added 0.4ppts to growth, broadly matching the 0.5ppts contribution in 2014/15, following a flat 2013/14. Public services had a strong year, added 0.4ppts.
Tasmania
Tasmanian output grew for a third year, expanding by 1.3%, after results of 1.2% and 1.5%. While this is still below average, of 2.0%, conditions have improved from the four challenging years 2009/10 to 2012/13 when output contracted by 0.4ppts.
International exports, after a period of structural adjustment and benefitting from a lower dollar, surged 20%, adding 2.8ppts to growth. Areas of weakness were agriculture and utilities, both subtracting 0.4ppts from growth. There were record low inflows into the hydo system and the unprecedented prolonged outage of the Basslink interconnector with mainland Australia. The 'balancing item', including inter-state trade, subtracted 4.0ppts from growth.
Andrew Hanlan is senior economist for Westpac and can be contacted here.