Sydney Is The Winner As Economic Strength Shifts Back From The Resource States: Deloitte

Prince William and Catherine, Duchess of Cambridge, in front of the Sydney Harbour Bridge. Jason Reed /Getty Images

New South Wales is overtaking the other big non-mining state as low interest rates rev up the finance sector, Sydney’s sweet spot, and increase housing prices and construction.

This glowing activity, according to Deloitte Access Economics, is also trickling through to retail spending because people now feel wealthier.

“The rapid rise in housing prices is also helping housing construction, as it has swung the ‘build versus buy’ equation firmly in favour of the former,” says Deloitte Access Economics partner Chris Richardson in his latest Business Outlook report.

He says Australia is an economy in transition, with its economic strength gradually shifting from the resource states back towards the south and east.

He says the better performance for NSW owes something to the disasters of the last decade.

Housing construction is lifting not merely due to low mortgage interest rates but also due to the failure to build anything much at all in recent years.

And retail has strengthened not merely as the housing price surge and stronger share markets have increased wealth, but also because Sydneysiders opted for caution when the GFC hit, and those healthier household finances are now proving a better base for the current dash of retail therapy.

Richardson says:

“The upshot is that retail spending gains are looking truly excellent, showing a clean pair of heels to most of the rest of the nation, while building approvals have also lifted handily.

“And in any State where retail (the largest part of spending in the State) and housing construction (the most volatile part) are looking up, then so too is the outlook.

“Add in the good news inherent in low interest rates for the State’s strong finance sector, and the backdrop to doing business in NSW is looking better than it has for some time.”

Here Richardson’s take on the rest of Australia:

  • Victorians have been reading horror headlines: Ford! Toyota! Alcoa! Yet the outlook isn’t nearly as bad as those headlines may make it seem. The dollar’s recent fall is bigger and better news for job prospects in Victoria than the known negatives of a series of upcoming closures.
  • Queensland has still got gas in its tank (with the mega gas developments still underway), and is also projected to be an outperformer in both retail and housing construction, with our forecasts seeing the State accounting for a rising share of these growing national markets.
  • South Australia’s economy was already struggling when news of Holden’s 2017 closure of its Elizabeth manufacturing operations hit the headlines. However, and as is true of Victoria, we project the lower $A and low interest rates will keep the home fires burning.
  • Western Australia’s mining construction boom is losing steam, as are its population growth and hotel occupancy rates, leaving the unemployment rate rising. Yet we see the slowdown as short-lived, with rising exports getting State economic growth back to trend by 2016-17.
  • Tasmania has turned the corner: retail sales growth is back with a vengeance, population gains are lifting and unemployment is falling. Yet the good news needs to be taken in context: the state’s demographics are doleful, and there are some notable medium term challenges.
  • The Northern Territory is in the prime of its business cycle, showing great strength. Yet that strength will be hard to maintain. The current level of project spending is enormous, and although there are new projects jostling in the pipeline, they may not match the Inpex effect.
  • Canberra’s job gains are still outpacing those nationally. We kid you not. But there’s already pain in the job loss pipeline, plus the risk the imminent Federal Budget adds to the pressures on an economy already feeling the squeeze from a shrinking housing construction sector

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