South Australia is lagging behind national economic growth as its population and core industries age.
According to a Moody’s report today, the South Australian economy grew 2.4% on a compound annual basis in the past 10 years, compared to 3.0% Australia-wide.
South Australia had a nominal gross state product (GSP) of $95.1 billion and a growth rate of 1.3% in the 2012-13 financial year, according to Moody’s, and the lowest rating of Australian states and territories, which range from Aa1 to Aaa.
From Moody’s report, here’s why:
The state’s economic expansion has lagged that of Australia as a whole, partly due to the greater prominence of agriculture and manufacturing … Population growth lags the national average and residents have an older demographic profile.
The ongoing restructuring of older manufacturing activities – such as the automotive sector – is increasingly challenged by higher exchange rates and global competition.
In FY2012/13, the state’s economic performance weakened considerably to 1.3% compared to the original budget estimate of 2.75% and to 1.8% in the prior year. Final demand contracted during the year by -0.2% due to weak household consumption and business investment, and declines in housing and government investments.
The state continues to face challenges related to the impact of the relatively high Australian dollar on its important manufacturing sector, most critically with the announced closure of the GM-related Holden auto plant by 2017.
The closure is estimated to result in a loss of 1500 jobs in 2016 and 4600 in 2017, taking a quarter point off of employment and GSP growth in 2017.
Economic prospects remain buoyed by mining projects, despite the decision last year not to proceed with the $30 billion Olympic Dam project. The state also benefits from defense industry activities, including the construction of three air-warfare destroyers and a project to maintain aircraft and Collins class submarines.
According to a March 2013 state government report, South Australia shed some 4,100 jobs in agriculture and 20,000 in manufacturing in the 10 years to 2012.
More cuts are expected in the coming years, with the closure of Holden’s car manufacturing plant in Elizabeth and its effects on the wider manufacturing industry.
Manufacturing accounted for almost 11 per cent of the South Australian economy in 2011-12, down from about 16 per cent in 2011-02. The state government is looking to help traditional manufacturers “transition” to advanced manufacturing and move jobs further up the value chain.
South Australia acknowledged in March that its GSP growth had fallen behind national levels, but pinned the difference on high growth rates in mining states of Western Australia and Queensland.
From the State Government report: