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March 2013
Institutional Bank.
Contents
Overview Australian economic outlook States overview Consumers: a state view Housing: state update Employment: a state view States New South Wales: construction a bright spot Victoria: ouch Queensland: returns to new normal Western Australia: another record year South Australia: concern builds Tasmania: underperforms Summary indicators Forecasts: state activity and employment 11 13 15 17 19 21 23 24 3 5 7 8 9
Coast-to-Coast produced by Westpac Economics Editors Andrew Hanlan & Matthew Hassan, Senior Economists Elliot Clarke, Economist Internet: www.westpac.com.au Bloomberg: WBCE <GO> Email: economics@westpac.com.au
8 8 6 4 2 0 -2 6 4 2 0 -2 -4
% ann
Real GDP (lhs)
% ann
Hours worked (rhs)
8 6 4 2 0 -2
-4 -6 Dec-12
Dec-02
Dec-06
Dec-10
Dec-14
-6 Dec-88
Dec-92
Dec-96
Dec-00
Dec-04
Dec-08
Chart 3.
Chart 4.
ppts cont'
updated: Mar 13
% of GDP
Sources: ABS, Westpac Economics
% of GDP
2004: 6.4% Latest: 4.7%
f/cs end 2014
8 6 4
Mining, CAPEX
8 6 4
2012f
2013f
2014f
Housing
2 0
Business investment
Net X
GDP
Chart 5.
Chart 6.
% income
Latest: 10.1% Post 2008 avg: 10.3%
30 20 10 0
index
% ann
Sources: ABS, NAB, Westpac Economics
Dec-92
Dec-96
Dec-00
Dec-04
Dec-08
Dec-12
Jan-04
Jan-07
Jan-10
Jan-13
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.
States overview
Demand growth: annual
18 15 12 9 6 3
0.6 2.7 0.9 0.3 -0.1 -4.6
Sources: ABS, Westpac Economics
% ann
Dec-11 yr Dec-12 yr
9.2 9.9 14.2
The Australian economy experienced a loss of momentum during 2012. This was a trend across the states, although understandably from differing starting points. Domestic demand growth over the second half of 2012 was weaker than the initial six months of the year in each of the states. In the December quarter, only NSW (0.4%) and WA (0.5%) experienced positive state demand. Qld experienced a flat quarter, while declines were recorded in the three southern non-mining states of Victoria (1.1%), South Australia (0.5%) and Tasmania (0.6%). These outcomes reflected the combined impact of a global downturn and ongoing domestic headwinds. The mining sector was not immune. A slump in global commodity prices and rising domestic costs led to an abrupt deceleration of mining investment. Private infrastructure investment, centred on mining, jumped more than 40% over the first half of 2012 in WA, but rose only 2.6% over the second half of the year. Ongoing domestic headwinds shaped conditions, particularly in the southern states. In this low-growth environment, businesses across the broader economy are reluctant to invest and jobs growth has been sub-trend. Indeed, hours worked across the nation contracted in 2012. Consumers felt the pinch from a slowing of wage incomes. At the same time, households remain focused on reducing debt from current high levels. This combination of weak incomes and a stretched balance sheet led to a tightening of belts. Consumer spending approached stalling speed over the second half of 2012 in Qld (0.7%), NSW (0.4%) and SA (0.3%), while consumers cut spending in Victoria (0.2%) and Tasmania (1.2%). In WA, spending growth moderated from 4.3% to 2.4% between the two half years. A shift to a low interest rate environment is having some impact. The housing sector is beginning to respond and consumer confidence has improved across the nation, boosted by a rise in household wealth.
0 -3 -6 Tas
Vic
SA
Qld
NSW
Aus
WA
% ann
WA, NT (16%) Vic, SA, Tas (31%) NSW, Qld, ACT (53%)
smoothed
% ann
18 15 12 9 6 3 0
-3 Dec-10 -6 Dec-14
Dec-94
Dec-98
Dec-02
Dec-06
% chg
Sources: State budget papers, Westpac Economics
6.7
2011/12
2012/13f
2013/14f
6.0 5.0
Westpac f/cs
However, the upswing of new dwelling construction is uneven and is likely to remain so. NSW, suffering from a shortage of housing stock, led the upturn over the second half of 2012, up 11.5%. A recovery is evident in WA, up 7.4% over this period, but not yet in Qld. An abundance of supply is likely to temper any recovery during 2013 in the southern states. The most recent forecasts from each of the state governments pre-date the disappointing December quarter state demand figures, published in early March. Westpac Economics is of the view that sub-trend growth is likely to persist in 2013 and 2014 as mining investment begins to decline. Business confidence remains fragile, compounded by Federal Election uncertainty and the high Australian dollar. While the household sector is constrained by high debt. In addition, in our view the recent strengthening of global growth, while a plus for now, is likely to falter.
Government f/cs
4.0 3.8
3.5
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.
States overview
Chart 1. Chart 2.
ppts ann
Housing Business construction Public demand Demand
15 12 9 6 3
Qld
Tas
Vic
SA
0 -3 -6
Sources: ABS, Westpac Economics
Dec-11
Dec-12
Dec-11
Dec-12
Dec-11
Dec-12
Dec-12
Dec-12
Dec-11
Dec-12
Dec-11
Dec-12
Chart 3.
Chart 4.
% ann
Sydney Melbourne
latest 6mths (annualised)
index
Jan '09 = 100 3mth m.a.
index
NSW Vic Tas SA Qld WA
Brisbane Perth
200
200
150
150
100
100
-20 Dec-00
50 Jan-07
Chart 5.
Chart 6.
$bn
Equipment
% ann
smoothed
% ann
Qld NSW Vic WA
03/04 to 07/08
25 15 5 -5 -15 -25
16 12 8 4 0 Dec-91
WA + Qld
Dec-99
Dec-07
Dec-91
Dec-99
Dec-07
-25 Dec-97
Dec-03
Dec-09 Dec-97
Dec-03
Dec-09
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.
%
NSW Qld SA Vic WA
10 8 6 4
15 10 5 0
%
NSW Qld SA Vic WA
* smoothed, real
15 10 5 0 -5 -10
2 0 -2 -5 -10
Sources: ABS, Westpac Economics
-15 -15 Dec-88 Dec-91 Dec-94 Dec-97 Dec-00 Dec-03 Dec-06 Dec-09 Dec-12
Chart 3. Consumer spending experienced a marked slowdown in 2012 as households opted to maintain high savings rates in the face of slowing income growth. Looking at the slowdown by state and adjusting for differentials in population growth, the most pronounced weakening was in Vic, followed by a milder but still significant moderation in Qld. NSW, SA and WA were relatively steady, the latter at a notably higher rate than other states. Total labour income stalled flat in 2012 across the big eastern states and slowed markedly in WA (albeit at still relatively strong rates). Consumers' unemployment expectations a proxy for their sense of job security have improved in 2013, particularly in WA & Qld. But available state data suggests household savings rates remain high in most states. This caution is also reflected in survey-based measures of consumers' risk aversion which remains high nationally but varied by state. Chart 5.
30 25 20 15 10 5 0
Chart 4.
index
NSW Vic Qld WA SA
index
Tas
index
Tas
60
30
risk averse
0
risk seeking
-30
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.
4 3 2 1 0 -1
st. devns
st. devns
4 3 2 1 0 -1 -2 -3
Sydney Perth
Melbourne Adelaide
Brisbane
Mar-08
Mar-09
Mar-10
Mar-11
Mar-07
Mar-11
Mar-03
Mar-07
Mar-11
Chart 3. After moving through an extended correction across most markets in 2011-12, dwelling prices have firmed across the board since mid 2012. More timely data shows a strong start to 2013 for auction market activity, suggesting further improvement. Conditions vary markedly across states though. Price wise, Perth and Sydney have been notably stronger for longer, with Melbourne a more recent improver, and patchy performances continuing for Brisbane and Adelaide. Most consumers expect price gains to continue although expectations are patchier outside of NSW and WA and outright pessimistic in Tasmania. From investors' perspective, gross rental yields on units have pushed above 5% in most capital cities, with Melbourne and Adelaide notable exceptions. On the supply side, approvals have risen strongly in WA & NSW but have been more uneven in Vic, flat in Qld and weak for SA and Tasmania. Chart 5.
net % NSW
net % Tas
-40 Jan-09
Jan-11
Jan-13
Jan-09
Jan-11
Jan-13
Chart 4.
Rental yields
10 9 8 7 6 5 4 3
*median rent on 2bdrm unit as % median unit price, adjusted for vacancies
10 9 8 7 6 5 4 3
index
NSW (23%) Vic (29%) Qld (23%) SA (7%) WA (14%) Tas (2%)
index
trend, Jan 2002 = 100 figures in brackets show %national last 10yrs
Sources: ABS, Westpac
60 40 20
2 Dec-88
Dec-98
Dec-08
Dec-88
Dec-98
Dec-08
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.
index
Dec 10 = 100
% ann
Sources: ABS, Westpac Economics
% ann
updated Mar 13
8 6 4
NSW
Vic
Qld
WA
0 -2
Domestic demand, adv 2qtrs (rhs)
-4 -6
Feb-12
Feb-09
Feb-12
Dec-92
Dec-97
Dec-02
Dec-07
Dec-12
Chart 3.
Chart 4.
% ann
Sources: ABS, Westpac Economics
7 6 5 4 3 2 1 0 -1 -2 -3
10 8 6 4 2 0 -2 -4 -6
% ann
Sources: ABS, Westpac Economics
% ann
8 6 4 2 0 -2
-4 -6 -8
Dec-92
Dec-97
Dec-02
Dec-07
Dec-12
-8 Dec-87
Dec-92
Dec-97
Dec-02
Dec-07
Dec-12
Chart 5.
Chart 6.
% ann
Sources: ABS, Westpac Economics
20
% ann
Domestic demand adv 2 qtrs *, lhs Jobs **, rhs
* smoothed, ** qtrly, average
% ann
10 8 6 4 2 0 -2 -4
Dec-97
Dec-02
Dec-07
Dec-12
Dec-92
Dec-97
Dec-02
Dec-07
Dec-12
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.
Employment by industry
Chart 1. Chart 2.
80
-60
60
Chart 3.
Chart 4.
-40
80
-20
60
Chart 5.
Chart 6.
-30
30
-9
-6
12
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.
10
Consumption Housing Investment Public Final demand -0.6 0.0 0.6 1.2 ppts
-0.3 0.4 -0.2 0.0
1.5 1.3
NSW's economy experienced a loss of momentum over the second half of 2012, mirroring a trend nationally. The outlook is for a modest improvement on the back of lower interest rates, constrained by persistent headwinds. State domestic demand expanded by 1.9% over the first half of 2012, slowing to a rise of 0.5% over the second half of the year. Annual demand growth moderated from 3.8% in Q2 to 2.4% in Q4, an outcome below the historic average of 3.2%. Consumer spending stalled over the second half of 2012, with rises of only 0.1% in Q3 and 0.3% in Q4. Government cash payments did see a bring forward of spending into Q2. More fundamentally, consumers adjusted to softer wage incomes. Consumer spending is likely to recover somewhat, supported by an improvement in household wealth. Notably, the WestpacMI Consumer Sentiment Index for NSW rebounded to 113 in the month of March, from an average 98 in Q3 and 104 in Q4.
yr Dec 11
0.9 0.6
yr Dec 12
1.9 2.4
1.8
2.4
3.0
% ann
Consumption: +2.2%yr 25 year avg: +3.0%yr
% ann
8 6 4 2 0 -2 -4
Public demand was the other key driver of recent softer demand. Government revenues have been dented by the current low growth environment. Also, a pull-forward of public investment into the 2011/12 financial year led to a temporary let down effect over the second half of 2012. The NSW economy stands to benefit more than most from a shift to a low interest rate environment given a sizeable degree of pent-up demand for housing stock. A response is underway, with new dwelling construction rebounding 14% over 2012, returning to the peak of late 2010. However, this improvement in 2012 was fully offset by a slump in renovation activity, down 15%. NSW's mining sector, with a focus on coal, has responded to relatively high global commodity prices. This is evident from an upswing in private infrastructure investment, which advanced 35% over the year, following on from a 25% lift during 2011. The payoff is becoming evident, with additional coal shipments.
Dec-96
Dec-00
Dec-04
Dec-08
Dec-12
% ann
# smoothed
% ann
New dwelling investment (lhs) Approvals, adv 2qtrs# (rhs)
NSW exports of goods increased by 8.3% in 2012, an outcome exceeding the historic average of 6.8%. Also, this contrasts with the non-mining states of Victoria, SA and Tasmania, which experienced a drop-off in exports during 2012. The uptrend in total business investment is set to extend into 2013. However, just how strong investment will be is unclear. Gains of 7% and 5% were recorded for 2011 and 2012 respectively. Infrastructure activity, 20% of total business investment, will remain a key driver with the pipeline of work up 30% in the six months to September 2012. The pipeline of non-residential building work has grown as well, as the Barangaroo project proceeds. The weak link to date is equipment investment, at a time of patchy consumer spending. A recovery in household demand from recent weakness will be supportive of investment. However fragile business confidence poses a downside risk.
Dec-96
Dec-00
Dec-04
Dec-08
Dec-12
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.
11
Domestic demand
10 8 6 4 2 0 -2
Historic avg: NSW, 3.2% ann
Sources: ABS, Westpac Economics
% ann
NSW Australia
8 6 4 2
% chg
GSP
GSP: 2.6% avg.
% chg
State demand
Gov't f/cs
(Dec 12)
8 6 4 2 0 -2
-4 Dec-96
Dec-00
1995/96
2000/01
2005/06
2010/11
Chart 3.
Chart 4.
% ann
Sources: ABS, Westpac Economics
50 40 30 20 10 0 -10
NSW: +8.3%yr
10
0
WA & Qld exports hit by cyclones & flooding
10 0
-10 Dec-90
Dec-94
Dec-98
Chart 5.
Chart 6.
$bn
Non-res. building
Work done Yet to be done Approvals
Infrastructure
Work done Yet to be done Commencements *
* 2qtr avg
$bn
7 6 5 4
% of demand
Equipment * Non-residential building Engineering
% of demand
* Smoothed, excludes computer software etc
7 6 5 4 3 2 1 0
Dec-98
Dec-06
Dec-90
Dec-98
Dec-06
Dec-92
Dec-96
Dec-00
Dec-04
Dec-08
Dec-12
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.
12
% ann
% ann
10 8 6 4 2 0 -2 -4 -6 -8
In the Dec 2012 edition of Coast-to-Coast we noted Vic's abrupt slowdown had resulted in a 'demand recession' (2 successive quarters of contracting state demand), with weakness across multiple fronts and a pronounced drag from the public sector. The picture has mostly deteriorated since then, albeit with more mixed signals from the Vic labour market and some signs of improvement in the housing sector. The Q4 national accounts were very poor for Vic. The state experienced another contraction in demand, the 3rd quarter in a row and, at 1.1%, the worst to date. Demand has stalled on an annual basis, with Vic's 0.1%yr in stark contrast to the 3.5%yr gain nationally. The Q4 detail is partially obscured by a large asset transfer from the private to the public sector that has seen several components of state investment withheld by the ABS due to confidentiality reasons. The transfer appears to be Vic's $4.5bn desalination plant which was completed late last year. Where applicable we have presented Q4 estimates assuming this is the missing figure. The public sector has been the main swing factor in Vic's under-performance. Consumer spending has been weak, rising just 0.3% in Q4, but is broadly in line with the weakness seen nationally. Private investment has been flatter in Vic than that seen nationally, not surprising given Vic's 'non-mining' status, but, on our estimates still made a small positive contribution to annual demand growth in 2012, despite an estimated 4% pull back in Q4 (from a 5.3% gain in Q3). In contrast, public demand contracted by close to 10% in 2012. Government consumption (direct purchases of goods and services by the public sector) declined 2.4% over the second half of the year the biggest 6mth contraction since the early 1990s recession, which was a particularly harrowing experience for Vic. The more spectacular decline was in public investment though. This item was heavily impacted by the aforementioned asset transfer but our estimates suggest underlying 'new' public investment collapsed by 60-70% over 2012H2. Fiscal austerity and the end of a major round of public investment has effectively taken over 2ppts off demand. The weak economic performance is also evident in Vic's labour market but with a fair few 'quirks' in the data. Employment stalled flat over 2012H2 after rising at a 2.6% annual pace over H1. Government dominated sectors added 0.3ppt to headline jobs growth in 2012, compared to close to 1ppt in 2011. The employment numbers for early 2013 suggest some improvement but are extremely problematic due to extreme volatility, some of which appears to be a survey quality issue. Latest data on Vic's housing sector has had a better tone in 2013. Housing investment rose over the second half of 2012, with activity up 4.6% in Q4, 5.1%yr. Approvals point to more modest gains ahead. In the established market, auction activity has shown a marked improvement in 2013 with clearance rates lifting to be back near long-run averages vs soft levels late last year. Monthly house price measures also suggest these have stabilised in 2013 after showing more persistent slippage through 2012 than that seen nationally.
Victoria
Australia
Dec-93
Dec-98
Dec-03
Dec-08
-2.1
Sources: ABS, Westpac Economics
2.7 -0.1
-2
0 ppts
'000
jobs, mth chg (lhs) jobs, 6mth chg, annual'd* (rhs)
% ann
8 6 4 2 0 -2 -4
-30
-6 -8 Feb-11 Feb-13
-40 Feb-07
Feb-09
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.
13
% ann total* state & local state & local - investment only
$bn
7 6 5 4
equipment
*new
-6 Dec-98
Dec-02
Chart 3.
Chart 4.
ppts
4 3 2 1 0 -1
labour income
*real
consumption
5 2 -1 -4 Dec-00
Sources: ABS, Westpac Economics
-2
-2 -3 Feb-11 Feb-13
-4 Dec-08 Dec-12
Dec-04
-3 Feb-05
Feb-07
Feb-09
Chart 5.
Chart 6.
%ann
Sources: ABS, Westpac Economics
60 40 20 0 -20 -40
% ann
Sources: RP Data; Westpac Economics
40 30 20 10 0 -10
Dec-95
Dec-99
Dec-03
Dec-07
Dec-11
Mar-96
Mar-00
Mar-04
Mar-08
Mar-12
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.
14
% ann
Sources: ABS, Westpac Economics
% ann
15 12 9 6 3 0 -3 -6 -9
Queensland remained in the doldrums in Q4, with state final demand growth a whisker below zero following a 0.8% decline in Q3. Annual growth has now decelerated to just 2.2%yr, a fraction of Q4 2011's 9.2%yr result. The impetus behind 2011s strong growth came from business investment, specifically rapid growth in engineering construction associated with three large LNG projects. While the completion of these projects is still a way off, the majority of the available growth dividend has been received; from here on out, growth in engineering construction is likely to maintain a much more modest pace. Herein is reason to suspect that Queensland's recent return to earth is more likely permanent than not. Whats more, with the Qld coal industry facing challenging times and the high Australian dollar severely impacting the state's competitiveness in other externally-focused industries (specifically, tourism and education), Qlds future growth prospects will largely rest on domestic demand. In Q4, household consumption growth was soft at 0.3%; annual growth remained a healthy 3.4%yr, although that is softer than the 4.4%yr seen during H1 2012. Housing investment rebounded in Q4, rising 5.3%; however, that followed a 8.9% fall in Q3, and leaves annual growth at just 2.9%yr. Renovation work has been much weaker than new dwelling construction: in Q4, new dwelling investment recovered the ground lost in Q3, but renovation activity only managed to recover a fraction of Q3's 8.3% fall; over the year, new dwelling construction is up 14%yr, but renovation work is little changed.
Dec-98
Dec-02
Dec-06
Dec-10
1.7 1.7
1.1
Sources: ABS, Westpac Economics
9.2 2.2
4 ppts
10
12
Softer household consumption growth and weakness in renovation work is not a Qld-only phenomena. Rather, it is in line with a broad-based trend which is a function of consumer caution and low credit growth. Housing finance data up to January points to activity in this sector remaining weak. What is particularly concerning is that first-home buyers key for new construction remain largely absent.
Qld budget: austerity drive to regain AAA rating For Qld at least, a key part of the underlying story is an
3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0 -4.0 2011/12 2012/13 2013/14 2014/15 2015/16
fiscal balance (lhs) underlying' fiscal balance (lhs)* net financial liabilities (rhs)
* excluding net disaster related transaction AAA credit range
%GDP
%revenue
Sources: Queensland Treasury, Westpac Economics
absence of job creation. In trend terms, employment has risen by a meagre 0.3% over the year to February. Had it not been for a 0.9ppt decline in the participation rate over the same period, the Qld unemployment rate would be well above 6%, versus its current 5.8%. Not only do businesses seem reluctant to hire additional staff, they are also becoming more reluctant to invest. Annual investment growth has slowed from near 50%yr in late 2011 to just 5%yr currently. As noted above, this has primarily been due to a marked slowdown in engineering investment. However, we have also seen non-residential investment growth decline (to near flat), and equipment spending fall. Finally, the public sector clearly remains under pressure, with public demand down 1.6%yr on declining investment, down 16% through H2 2012.
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.
15
$bn
Up 164% on end 2010; just 18% on end 2011.
infrastructure
Sources: ABS, Westpac Economics
$bn
60 50 40 30
8
Equipment
6 4 2 0 Dec-92
Dec-96
Dec-00
Dec-04
Dec-08
Dec-12
0 Dec-90
Chart 3.
Chart 4.
% ann
labour income consumption
*real
period averages
% ann
14 12 10 8 6 4 2 0 -2 -4
'000
13 12 11 10 9 8
7 6
Dec-04
Dec-08
Dec-12
1 Jan-90
Jan-94
Jan-98
Jan-02
Jan-06
Jan-10
Chart 5.
Chart 6.
% ann
Qld, 1.9%yr (lhs) Aust, 1.6%yr (rhs)
Avg: 2.5%yr
% ann
56 54 Feb-91
2 0
Feb-95
Feb-99
Feb-03
Feb-07
Feb-11
Jun-87
Jun-92
Jun-97
Jun-02
Jun-07
Jun-12
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.
16
% ann
WA Aust
Despite a strong rise in state demand over 2012, WA is starting to show distinct signs that the latest ramp up in the mining boom is starting to reach a crest. Demand quarter to quarter has shown a significant deceleration: rising just 0.5% in Q4 vs 2.9% in Q3, 2.1% in Q2 and 8.2% in Q1. Some of this is likely to be a temporary 'soft patch' reflecting the sharp jolt to confidence mid to late last year when slumping commodity prices and associated project cancellations/deferrals and cost cutting saw severe fears of a hard landing for the mining sector. Commodity prices have since rallied and confidence has mostly been restored. However, the construction pipeline, which has been shrinking steadily since mid-2011, is clearly pointing to a moderation in WA's investment-dominated demand growth.
16 12 8 4 0 -4 -8
Dec-92
Dec-96
Dec-00
Dec-04
Dec-08
Dec-12
2.6 3.0
yr Dec 11 yr Dec 12
6.5 11.0
Even with the soft finish, 2012 will still go down as the strongest year yet for WA's mining boom. State demand increased 14.2% through the year and, although that annual pace has been eclipsed (in 2011 and 2006), the 13.6%yr rise for the combined 2012 calendar year is a new record, a feat all the more impressive given the high starting point. The December quarter on its own was less robust though. Household consumption continued to record solid growth, rising 1.1% (6.9%yr), but housing investment fell back 1.5%qtr (9.8%yr). Business investment flattened out, with an estimated 2.8% decline in non-residential and engineering construction (Westpac estimates some of the Q4 spending detail was withheld by the ABS due to confidentiality requirements - see Vic for more detail). On public demand, there is little to say: it was little changed in the quarter and up 2.8%yr.
9.9
14.2
4 ppts
12
16
WA
Australia
last 6 mths annualised
The deceleration is also apparent in WA's labour market. After rising 8.2% in the year to May 2012, growth in hours worked hit a wall mid-year and have declined over the six months to Feb. The turnaround has been less apparent in employment but trend growth here has also moderated from 4.7%yr to 3%yr. The disconnect may reflect the confidence 'jolt' in Q3 last year, with firms putting orders on hold and reducing staff loading but keeping the same headcount the nightmare of securing skilled workers out west no doubt fresh in many memories. What is also interesting though is that the rapid cool off appears to have flowed through very quickly to wages, with growth in wages pulling back in line with the national average over the second half of 2012. Looking ahead, retail sales suggest the jobs slowdown may be feeding through to demand. The key though will be how WA's still massive pipeline of mining capex work flows into quarterto-quarter activity from here on.
Feb-98
Feb-03
Feb-08
Feb-13
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.
17
WA labour market
8 6 4 2 0 -2 -4 -6 Feb-93
WA jobs (lhs) Aust jobs (lhs) un. rate, WA (rhs)
% ann
Sources: ABS, Westpac Economics
12 10 8 6 4 2
7 6 5 4 3 2 1
% ann
Wage Cost Index, WA Australia, ex WA*
avg 5%yr
% ann
7 6
4.5%yr
5 4 3
2 1
MkII
Feb-97
Feb-01
Feb-05
Feb-09
Feb-13
Chart 3.
Chart 4.
% chg
WA Australia ex WA
MkII
-0.3
Chart 5.
Chart 6.
% ann
WA Aust
infrastructure
Sources: ABS, Westpac Economics
$bn
70 60 50 40
0.5 Jun-92
Jun-96
Jun-00
Jun-04
Jun-08
Jun-12
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.
18
% ann
SA Australia
% ann
10 8 6 4 2 0 -2
South Australia remains a key point of concern. In Q4, it experienced its second consecutive decline in activity (0.5%) following Q3's 2.7% print. Activity is now 3.1% lower than June 2012, back near its year-ago level. Of greater concern is that, had it not been for a 3.1% rise in public demand, the Q4 outcome would have been much worse, with private demand falling 1.5% in the quarter. The key area of weakness for SA is housing investment. It declined throughout 2012 to be down 16%yr. And, in contrast to the rest of the nation, new dwelling construction and renovation work have both fallen significantly in SA. Highlighting the pervasiveness of this trend, new dwelling construction is now 25% off its peak level (June 2011). Renovation work has declined by 16% over the 9 months to December.
Dec-96
Dec-00
Dec-04
Dec-08
Dec-12
Household consumption meanwhile fell 0.2% in Q4. Available data on retail sales gives reason to suspect that household demand is on the improve, but growth is likely to remain modest. Total employment has risen by just 1.5k over the year to February in trend terms and the unemployment rate has risen by 0.7ppts to 5.8%. What's more, the participation rate remains 0.8ppts below its late-2008 peak. Not only is the jobs market providing little in the way of momentum, but SA population growth is also weak relative to the other states, limiting the natural growth impulse.
1.5
1.0 0.0
yr to Dec 2011 yr to Dec 2012
With manufacturing in a depressed state and the high Australian dollar also impacting the key agricultural sector, this situation is unlikely to change much in the near term.
% ann
* exports of goods, smoothed
% ann
SA Australia
Given the state of the household sector, the impact of the high Australian dollar and the absence of any big resource projects for the state, it is hardly surprising that business investment fell 6.5% in Q4 and is flat over the year. The weakness in investment is broad based. Despite a 6.3% rebound in Q4, equipment investment declined by 14% over 2012. Infrastructure and non-residential building both rose over the year (13%yr and 4.4%yr respectively), but activity in these sub-sectors fell sharply in Q4 (19% and 6% respectively). Of concern for the outlook, the pipeline of work to be completed looks to have peaked. This suggests that the business sector will likely continue to provide little in the way of support for growth in 2013. All told, 2013 will prove challenging for SA with growth hard to come by.
Dec-96
Dec-00
Dec-04
Dec-08
Dec-12
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.
19
Population growth
% ann 2.5 9 7 5 1.5 3 1 1.0 0.5 -3 1.0 0.5
regional migration schemes expanded
'000
Jobs, mth chg (lhs)
% ann
Sources: ABS, Westpac Economics
% ann
2.0
SA
Australia
* smoothed
-5 Feb-13
Feb-09
Feb-11
0.0 Jun-92
Chart 3.
Chart 4.
SA
Australia
'000
SA (lhs) Australia (rhs)
'000
19 17 15 13
-0.5 Jan-09
0.3 Jan-91
Chart 5.
Chart 6.
Business investment
1.6 $bn
Equipment
$bn
Non-res. building
Infrastructure
Sources: ABS, Westpac Economics
$bn
1.2
0.8
0.4
0.4
1.0 0.5
0.0 Dec-90
0.0
Dec-94
Dec-98
Dec-02
Dec-06
Dec-10
0.0 Dec-90
Dec-98
Dec-06
Dec-90
Dec-98
Dec-06
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.
20
The Tasmanian economy is particularly vulnerable to the current low-growth environment, reinforced by a loss of momentum in the mainland economy during 2012. Tasmania's starting point was weaker than that of the other states, with the winds of structural change particularly hard felt. Tasmanian state demand was broadly flat in 2011, managing a rise of only 0.6%. This compares with an average rise of around 2% in NSW, Victoria and South Australia, and 4.6% nationally over this period. Weaker international conditions and ongoing domestic headwinds led to a downturn of the Tasmanian economy in 2012, with state demand contracting by 4.6% over the four quarters. Victoria and South Australia were the next weakest of the states, with demand broadly flat. Private and public demand in Tasmania both experienced a set back in 2012, declining by 5.5% and 2.2% respectively.
yr Dec 11 yr Dec 12
-4.6
-6
-4 ppts
-2
Population growth
2.5 2.0 1.5 1.0 0.5 0.0
Sources: ABS, Westpac Economics
% ann
Tasmania Australia
% ann
Consumers cut spending for a second year as wage incomes declined, household wealth fell and debt levels remained elevated. Consumption fell by 1.8% in 2012, following a 2.2% fall during 2011. Business equipment investment staged a rebound in 2011. However, this was largely unwound in 2012. Equipment spending subtracted 1.7ppts from annual state demand over the last year, following a 1.4ppts addition the year earlier. Despite this weakness, non-residential building activity and private infrastructure work managed to stabilise during 2012, albeit at weak levels. Indeed, there is some upside to infrastructure activity in the near-term, as evident from a lift in the work pipeline, boosted by Hydro Tasmania's $425mn wind farm at Musselroe Bay. Overall, the business investment environment is likely to remain challenging if household demand growth is sub-par and given a general lack of business confidence.
0.0 -0.5
-0.5 Jun-85
Jun-91
Jun-97
Jun-03
Jun-09
% chg
State demand
GSP: 2.0% avg.
Gov't f/cs
(Dec 12)
The state government, in the December budget update, downgraded their growth forecasts in light of a weaker than expected outcome in 2011/12. GSP increased by only 0.5% in 2011/12 and is forecast to improve gradually to 1.0% in 2012/13 and to 1.5% in 2013/14. Tasmania will benefit from a shift to a low interest rate environment. An improvement in conditions on the mainland in the non-mining sectors, from a weak second half of 2012, will also be a plus. Consumer confidence has rebounded in Tasmania, to 105 in the month of March, up from around 85 for much of the second half of 2012. Tempering this, population growth has slowed sharply and dwelling approvals softened further late in 2012, early 2013. On balance, the risks to the state government's already low growth forecasts are skewed to the downside.
0
Sources: ABS, Tas Gov't, Westpac Economics
-3 1990/91
-3 2005/06 2010/11
1995/96
2000/01
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.
21
Domestic demand
% ann 16
Tasmania
Goods exports
% ann 16 900 12 8 4 0 -4 850 800 750 700 650 600 Dec-92
Sources: ABS, Westpac Economics
950
$mn
AUDmn, 4qtr avg (lhs) Growth, yr avg (rhs)
% chg
12% decline 4 yrs to Dec 11
24 20 16 12 8 4 0 -4 -8 -12 -16
12 8 4 0 -4 -8 Dec-92
Australia
Dec-96
Dec-00
Dec-96
Dec-00
Dec-04
Dec-08
Dec-12
Chart 3.
Chart 4.
index
Australia Tas*
* 2 month average
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Chart 5.
Chart 6.
Non-residential construction
0.4 $bn Building Infrastructure
work done work done
Business investment
$bn 1.2 0.7 0.6 0.9 0.5 0.4 0.6 0.3 0.2 0.1 $bn
Sources: ABS, Westpac Economics
$bn
Basslink
0.3
0.2
0.1
0.3
0.0 Dec-90
0.0 Dec-92
Dec-97
Dec-02
Dec-07
Dec-12
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.
22
Summary indicators
Chart 1. Chart 2.
Shares
2011/12
$'000
Share of national
Share of output
15
Sources: ABS, Westpac Economics
1 4 11 20 21 40
2011/12 11
15
Aust = 21%
22 14 52
40 40
60
80
100
120
10
20
30
40
10
20
30
40
50
60
Chart 3.
Chart 4.
Population
8 7 6 5 4 3 2 1 0 NSW Vic Qld WA SA Tas ACT NT
2.4 1.7 5.6
Dwelling commencements
60
Sources: ABS, Westpac Economics
mn
7.3
000
Sources: ABS, Westpac Economics
50
Australia: 22.7 million
4.6 Jun 2012
40 30 20 10
2011/12
0.5
0.4
0.2
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.
23
Govt f/cs
Australia * GDP Employment GSP Employment GSP Employment GSP Employment GSP Employment GSP Employment GSP Employment 3.4 1.1 2.4 0.6 2.3 0.8 4.0 1.2 2.1 0.5 6.7 3.7 0.5 1.1 3.0 0.8 2.00 0.75 2.00 0.50 3.75 0.25 1.75 0.00 6.00 3.25 1.00 0.25
Westpac
2.9 1.1 2.3 1.4 1.8 0.7 3.4 0.2 1.5 0.2 5.8 3.3 0.8 0.3
Govt f/cs
3.2 1.5 2.75 1.00 2.50 1.50 3.50 2.25 2.50 1.00 5.00 2.25 1.50 0.50
Westpac
2.4 0.8 2.6 0.9 2.0 0.6 2.6 0.9 1.7 0.5 3.4 1.4 1.1 0.3
NSW
Vic
Qld
SA
WA
Tasmania
* Government forecasts for Australia are a weighted average of the state government forecasts. State government forecasts from most recent state budget papers (December mid year updates) Westpac's state numbers are calculated to be consistent with the national forecasts.
Employment
2004/05 NSW Vic Qld SA WA Tas
Source: ABS.
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.
24
Westpac Economics
Sydney Level 2, 275 Kent Street Sydney NSW 2000 Australia Telephone (612) 8254 8372 Facsimile (612) 8254 6934 Bill Evans Chief Economist Global Head of Economics & Research Andrew Hanlan Senior Economist Matthew Hassan Senior Economist Huw McKay Senior International Economist Justin Smirk Senior Economist Elliot Clarke Economist Auckland Takutai on the Square Level 8, 16 Takutai Square Auckland, New Zealand Telephone (649) 336 5671 Facsimile (649) 336 5672 Dominick Stephens Chief Economist, New Zealand Michael Gordon Senior Economist Felix Delbrck Senior Economist Nathan Penny Economist London Camomile Court, 23 Camomile St, London EC3A 7LL United Kingdom Telephone (4420) 7621 7061 Facsimile (4420) 7621 7527 James Shugg Senior Economist
Disclaimer
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26
Disclaimer continued
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27