State & Territory Perspectives. March 2015

Transcription

1 State & Territory Perspectives Diana Mousina Economist Gareth Aird Economist March 215 1

2 Summary 2

3 Summary 3

4 State Structure 4

5 State Structure STATE SHARES OF GDP (%, ) % 1 INDUSTRY COMPOSITION OF GDP (% of GSP, ) % 1 WA 16% QLD - 19% 8 8 Other Services Transport, Postal & Warehousing VIC - 22% SA - 6% TAS 2% Utilities Retail & Wholesale Construction Manufacturing Mining - 31% ACT 2% NT 1% 2 2 Agri Vic QLD SA WA Tas NT ACT 5

6 State Growth GSP % (chain volumes) % 8 15/16 annual growth (f) 8. Index STATE DEMAND (Sep 8 = 1) WA Index /15 annual growth (f) VIC SA 1 VIC QLD SA WA TAS NT ACT AUST. QLD TAS 9 Sep-8 Sep-9 Sep-1 Sep-11 Sep-12 Sep-13 Sep-14 9 State spending fell in QLD, ACT, NT and (marginally) in QIV. VIC had the strongest growth over the quarter with solid rises across all of the components of demand (business investment, household consumption, government spending and dwelling investment). The increase in WA spending was driven by higher business and dwelling investment. spending was dragged lower by weak business investment. Residential dwelling construction also looked low compared to trends in building approvals. A pickup should be apparent in QI. We expect the stronger performing States to be and VIC over the next few years. LNG exports from QLD will boost Gross State Product significantly over 215/16. 6

7 Capital Expenditure 15 STATES: CAPEX (volume) WA 15 3 NON-MINING STATES: CAPEX (Volumes, quarterly) 4 Non-res build. const. Engineering 4 3 Qld VIC VIC 2 5 Vic 5 1 SA SA 1 SA TAS TAS Sep-89 Sep-93 Sep-97 Sep-1 Sep-5 Sep-9 Sep-13 Mar- Mar-6 Mar-12 Sep-2 Sep-8 Sep-14 Mining capex is declining in WA and QLD at a faster rate than non-mining capex is picking up in the non-mining States. Across the non-mining States, non-residential building growth is trending higher and offsetting falls in engineering construction. Government infrastructure commitments (particularly on road and rail infrastructure projects) make up the majority of the engineering construction pipeline in the non-mining States. 7

8 Building Approvals 5 COMM. BLDG. APPROVALS (moving annual total) INDUSTRIAL BLDG. APPR (moving annual total) QLD OTHER# BLDG. APPR (moving annual total) #Accom, health, ed'n, aged & leisure 5 4 VIC VIC 3 2 QLD 2.8 VIC WA 1 SA Jun-1 Jun-4 Jun-7 Jun-1 Jun SA WA. Jun-1 Jun-4 Jun-7 Jun-1 Jun QLD SA WA Jun-1 Jun-4 Jun-7 Jun-1 Jun-13 1 Trends in commercial building approvals have trended down over recent months. Industrial building approval trends are more positive in the large non-mining States. Other building approvals have been stronger. other building approvals have been boosted by some large health-related buildings. 8

9 Building Approvals ' 75 RESID. BLDG APPROVALS (mov. annual total) VIC ' 75 Residential approvals are running at or near record levels in most States and Territories. The increase in dwelling approvals over the past year has been most pronounced in VIC, QLD and. WA approvals have also grown steadily over the past year. 6 6 VIC remains leader in number of new dwellings constructed on annual basis. 45 QLD 45 In the small non-mining States, approval activity has lifted marginally in SA and TAS but remains weak in ACT (after previously elevated construction activity in 213). 3 3 NT approvals are a little higher over recent months in line with demand for housing from mining-related workers. WA 15 SA 15 ROA Jan- Jan-3 Jan-6 Jan-9 Jan-12 Jan-15 Total approvals growth should consolidate over 215. New dwelling construction will be well supported over 214 and 215 by demographics and low interest rates. Housing starts should be near 197k in 214 and a similar level in 215. Risks of an oversupply on a national basis are low. But there is a risk of saturation in Victoria. 9

10 Labour Market 16 's JOBS CHANGE PAST YEAR (year to Feb.215, 's) Total = 151k Full-time = 84k Part-time = 67k UNEMPLOYMENT BY STATE % % 9 9 Tas SA Part-time Qld Vic WA 4 Full-time -4 VIC QLD SA WA TAS AUST 2 Jun-9 Aug-11 Oct-13 Oct-9 Dec-11 Feb-14 2 Jobs growth over past year has been concentrated in, VIC and WA. Unemployment rate trending higher in most States and Territories. Exceptions are VIC and TAS. full-time jobs growth accounted for 46% of national full-time jobs growth. Higher full-time jobs growth in (relative to the other States) is positive for consumer spending. Lowest unemployment rate remains in WA despite resource-related job losses. 1

11 Consumer Sentiment Index 14 STATE SENTIMENT* Source: WBC-Melbourne Institute Index 14 Sentiment lifted post-rate cut in February but fell back in March and remains below the critical neutral level of 1. This is despite the drop in petrol prices which normally boosts sentiment. 12 WA VIC 12 Sentiment remains the strongest in. One of the key factors keeping consumer confidence low is elevated unemployment concerns. Strong dwelling price growth in and to a lesser extent VIC is supporting consumer sentiment. 1 QLD 1 Sentiment is lowest in WA as mining growth continues to decline. SA *Smoothed 8 Jan-28 Oct-29 Jul-211 Apr-213 Jan

12 Retail Trade % (trend, annual % change) % RETAIL TRADE Rest of Australia Mining States VIC National National retail retail sales trade growth growth is is being being driven driven by by the the large large nonmining nonmining States. States. Annual growth rates have slowed in recent months. and VIC have had the largest rises in dwelling prices across and the VIC nation. have Rising had the wealth largest positions rises in tend dwelling to fuel prices an increase across the in nation. consumer Rising spending. wealth positions tend to fuel an increase in consumer spending. Income growth in the mining States has declined which has had Retail an sales impact growth on retail in the sales. mining As employment States has declined growth but slows now even looks further to be stabilising in the mining at a States, subdued retail pace. sales Slowing spending income will and be impacted. employment growth will continue to keep retail spending at soft levels in the mining States. Large rises in retail spending have occurred in cafes, restaurants, Large rises in catering retail spending services have takeaway occurred food in cafes, services and also restaurants, in categories catering related services to home & takeaway improvement food services spending. and Home-related also in categories spending related tends to home to increase improvement when i) spending. there is a significant Home-related increase spending in dwelling tends to prices; increase and when: ii) there i) there is large is a increase significant in increase new dwelling in dwelling construction. prices; and ii) there is a large increase in new dwelling construction. -3 Jul-6 Nov-7 Mar-9 Jul-1 Nov-11 Mar-13 Jul

13 Housing Lending LOAN APPROVALS BY STATE Index (owner-occupied number, July '8 = 1) Index New housing loan demand has been largely driven by investor interest, particularly in and VIC. Momentum in owner-occupied lending has slowed over the past six months. First-home buyer lending across the States remains low. But some FHB s appear to be hidden in the investor category. 125 Vic WA 15 SA 85 Qld Tas 65 Jul-8 Jul-11 Jul-14 Jul-1 Jul The interest rate cut in February has again fuelled activity in the housing market. Loan approvals growth should remain elevated over the first half of the year. But, strong house price growth (particularly in and VIC) and falling rental yields should provides a limit for upside growth in lending to owner-occupiers and investors. APRA is reviewing lending practices that authorised deposit taking institutions are undertaking. APRA will be focussing on three areas: i) higher risk mortgage lending (e.g. high loan-to-valuation and high loan-to-income loans); ii) strong lending growth to property investors (portfolio growth materially above 1% will be a risk indicator); and iii) loan affordability test for new borrowers (APRA would prefer an interest rate buffer of at least 2% above the loan product rate and a floor lending rate of at least 7%). 13

14 Housing Lending INVESTOR LOANS (moving annual total) Majority of larger States are currently in a solid upward trend for investor lending. 6 6 Investors continue to favour. This has contributed to a big increase in property prices in Sydney. Low interest rates and the hunt for yield are driving lending momentum to investors. 4 2 VIC QLD WA 4 2 The impacts of APRA oversight on investor lending is uncertain. APRA is targeting investor portfolio growth of 1%pa (current investor credit growth) across the financial institutions. Record investor lending over 214 pushed investor credit growth to this level. Overall, historically low interest rates and the expectation of further house price appreciation has seen investor appetite for housing credit rise solidly. SA Dec-1 Dec-4 Dec-7 Dec-1 Dec-13 14

15 Dwelling Prices Index 85 7 DWELLING PRICES Melbourne Sydney Index 85 7 Dwelling price gains have been concentrated in Sydney and Melbourne, reflecting high levels of investor interest. Price trends in smaller capitals and regional areas are more restrained. Lower affordability and lower rental yields will ultimately weigh on house price growth. Further interest rate cuts would push in the other direction. Perth Brisbane 4 Adelaide Regional 4 Source: CoreLogic RP Data 25 Jan-6 Jan-8 Jan-1 Jan-12 Jan

16 Demographics %pa 4 3 ABS311 POPULATION GROWTH (annual % change) WA %pa 4 3 's 15 1 INTERSTATE MIGRATION (annual totals) Qld 's Qld 2 5 Vic WA 5 1 Vic 1 SA SA -5-5 Tas Jun- Jun-2 Jun-4 Jun-6 Jun-8 Jun-1 Jun-12 Jun-14-1 Mar- Mar-3 Mar-6 Mar-9 Mar-12-1 Population growth rates are coming off peak levels in the mining States. Interstate migration flows show a weakening in migration to WA while the net outflow from has slowed. 16

17 Trade 14 STATE EXPORTS & IMPORTS (Volumes, annual, original) EXPORTS IMPORTS 14 Growth in export volumes will be an important driver of GDP growth over the next few years. A lower AUD is acting as an income buffer that supports export receipts. WA export volumes will continue to grow as further iron ore and LNG capacity comes online WA 15 7 QLD exports will be supported by solid levels of coal volume exports. Lower prices will partially offset higher volumes. QLD exports will receive a significant boost around when LNG projects are completed and the export phase begins. LNG exports are set to triple over the next three years. 35 Qld Vic 35 Import growth is past the peak in WA and QLD given lower mining capex (which is import intensive). Qld Vic WA Jun-199 Jun-25 Jun-1994 Jun-29 17

18 Public Spending 25 PUBLIC SPENDING (Consumption & Investment, Volume) 25 Across the States, there has been a distinct flattening in total public sector spending over the past five years compared to the previous ten. 15 VIC Asset Transfers 15 Low public spending growth means that the sector is not adding to State growth. The public sector in each State is around 2% of activity. So flat spending is a significant drag on growth. Total public spending expected to remain subdued while the Federal Government targets a path back to a Budget surplus. QLD WA 5 5 Mar- Mar-3 Mar-6 Mar-9 Mar-12 Mar-15 18

19 Inflation %pa Syd Melb Bris Adel Perth CAPITAL CITY INFLATION (QIV 214) Australia Inflation is well contained across all the States and price growth has come off significantly because of the drop in petrol prices. Low petrol prices will keep headline inflation low over the near-term. Some offset will be provided by the falling AUD boosting import prices. Housing costs remain elevated in Sydney and Brisbane. We see the key measures of underlying inflation remaining within the RBA s 2-3% target band for the next few quarters. Hob Darwin Canb 19

20 Wage Costs Vic Qld SA WA Tas NT ACT Aus %pa WAGE PRICE INDEX (% annual growth, QIV) Public Private National Average National wages growth is running at 2.5%pa and outperformed headline QIV CPI (1.7%pa). NT wages are above the national average thanks to the increase in the demand of labour associated with the LNG activity in the State. Large decline in WA private wages growth a result of lower demand for mining related employment. WA wages growth will continue to trend down as unemployment rises. Spare capacity in the labour market will keep wages growth low. We expect nominal wages growth to remain under 3% in the near-term given soft conditions in the labour market nationally. We see the unemployment rate stabilising midyear before declining over 216. As employment growth lifts, wages growth should start to increase over

21 The Territories Index 15 FINAL DEMAND (Sep 8 = 1) Index STATE BUS. INVESTMENT (Volume) NT 14 NT (lhs) AUS (rhs) ACT AUS ACT (rhs) Sep-8 Mar-1 Sep-11 Mar-13 Sep Mar- Mar-3 Mar-6 Mar-9 Mar-12 Mar-15 NT spending continues to be supported by high levels of resource investment (Ichthys LNG project). Spending will remain at an elevated level until a 216 while construction activity continues. High levels of business investment are flowing through to other sectors. ACT growth remains low. Housing construction is trending down and will detract from growth in

22 State Specialisation Ratios and VIC 1.6 SPECIALISATION RATIOS (213-14) % VIC SPECIALISATION RATIOS (213-14) Mining Agriculture Construction Transport Government Health Retail Manufacturing Education Wholesale Prof services Other services Communications Fin & Ins.. Mining Construction Government Other services Transport Health Agriculture Wholesale Manufacturing Education Retail Fin & Ins Prof services Communications. and Victoria the two most diversified State economies in Australia. Both States have a specialisation in financial & insurance, communication and professional services meaning that both States benefit most from a low interest rate environment. 22

23 State Specialisation Ratios QLD & WA 1.4 QLD SPECIALISATION RATIOS (213-14) % WA SPECIALISATION RATIOS (213-14) Communications Fin & Ins Prof services Education Agriculture Other services Manufacturing Health Retail Government Mining Transport Wholesale Construction.. Fin & Ins Communications Government Education Wholesale Retail Health Manufacturing Other services Prof services Transport Agriculture Construction Mining. Both Qld and WA have a high State specialisation towards construction. The importance of the mining industry to the WA economy is reflected in a specialisation ratio of

24 State Specialisation Ratios SA & TAS 2.5 SA SPECIALISATION RATIOS (213-14) TAS SPECIALISATION RATIOS (213-14) Mining Communications Fin & Ins Construction Prof services Transport Other services Wholesale Retail Education Government Manufacturing Health Agriculture.. Agriculture Education Retail Health Government Transport Manufacturing Other services Communications Wholesale Construction Fin & Ins Prof services Mining. Tas has the highest exposure to the agricultural industry amongst the States. The sector has accounted for around 8½% of the State s income over the past few years. The forestry industry, in particular, is a solid contributor to the local economy. SA, with sizeable wine, wheat, barley and forestry industries is also more reliant on the agricultural sector relative to the rest of Australia. The industry is worth around 6% of the State s income. 24

25 State Specialisation Ratios ACT & NT ACT SPECIALISATION RATIOS (213-14) NT SPECIALISATION RATIOS (213-14) Mining Agriculture Manufacturing Wholesale Fin & Ins Transport Retail Communications Health Other services Construction Education Prof services Government. Financial and insurance Wholesale Communications Professional services Manufacturing Retail Education Agriculture Health Transport Other services Government Mining Construction Smaller jurisdictions tend to have a larger share of the workforce employed in public administration compared to bigger jurisdictions, essentially due to diseconomies of scale. The ACT economy is highly dependent on public sector employment. As the national capital, the public sector employs a big chunk of the workforce and accounts for around a third of the total income generated in the ACT. It means that ACT economic growth outcomes are very much influenced by the size of the public sector workforce. The construction and mining sectors are very important to the NT economy. 25

26 Forecasts Gross State Product 213/14 214/15 215/16 (a) (f) (f) VIC QLD GSP % (by state, chain volumes) % share of economy (rhs) 16. SA WA TAS NT /14 annual growth (lhs) 14/15 annual growth (f) (lhs) ACT AUST VIC QLD SA WA TAS NT ACT AUST

27 Forecasts Employment 213/14 214/15 215/16 (a) (f) (f) Employment % (by state) % VIC share of economy (rhs) QLD SA WA TAS NT /15 annual growth (f) (lhs) 15/16 annual growth (f) (lhs) ACT AUST VIC QLD SA WA TAS NT ACT AUST

28 Forecasts Unemployment Rate 213/14 214/15 215/16 (a) (f) (f) Unemployment Rate % (by state, annual average) % VIC QLD /15 (f) 215/16 (f) SA WA TAS NT ACT AUST VIC QLD SA WA TAS NT ACT AUST 3 28

29 Forecasts Wage Price Index 213/14 214/15 215/16 (a) (f) (f) Wages % (by state) $ 1 Average Weekly Earnings (rhs) 1,8 VIC ,35 QLD SA WA TAS NT /15 WPI %pa (f) (lhs) 15/16 WPI %pa (f) (lhs) 45 ACT AUST VIC QLD SA WA TAS NT ACTAUST 29

30 Sydney Melbourne Brisbane Adelaide Perth Hobart Darwin Canberra AUST Forecasts Consumer Price Index 213/14 214/15 215/16 (a) (f) (f) Sydney Melbourne Brisbane CPI % (by capital city, annual average) % /15 (a) 215/16 (f) 3. Adelaide Perth Hobart Darwin Canberra AUST

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