Australia: Solid growth across the south-eastern states - NAB

Research Team at NAB, suggests that solid growth across the Australia’s large south-eastern states has become increasingly entrenched over the past year, while difficult conditions in the mining sector are having a more pervasive impact across Western Australia, the Northern Territory and parts of Queensland.

Key Quotes

“Looking forward, New South Wales and Victoria will remain in the lead in coming years in terms of state final demand, and real gross state product growth will be neck and neck. 

The combination of low commodity prices and lower mining investment is having a more pronounced impact on WA, the NT and parts of Queensland to differing degrees. While state final demand will remain weak however, real gross state product in these states will be supported by the surge in LNG export volumes currently underway.

Strength in tourism spending (both domestic and international) and education exports remain bright spots for most states and territories, including Queensland, Tasmania, SA and the larger states of NSW and Victoria – the NT however has not received the same boost over the past year. Higher income levels in Asia, coupled with Australia’s stable geopolitical environment should sustain tourism activity, although the pace of growth may ease as the pace of AUD depreciation diminishes.

Recent policy announcements in SA are also encouraging, and there are some greenshoots emerging in the monthly data. The capacity for growth to pick up in SA will be constrained by the more limited industrial base and ageing population – similar challenges remain for Tasmania.

Conditions in the ACT have also improved as public sector hiring freezes have been lifted, although fiscal pressure will remain a risk for the ACT given its dependence on the public sector.

Better rainfall will be positive for broadacre crop production and exports in WA, SA and NSW,although the low dairy price is a concern for Victoria and Tasmania.

The main area for which there is potential upside is private non-mining business investment. Even in the more diversified economies, forward-looking indicators are mixed, despite business confidence holding up (for now) and business conditions solid. There will however be offset from infrastructure expenditure in NSW and Victoria in particular, while initiatives to support the submarine industry will boost investment in SA and help offset the impact of imminent declines in car manufacturing.”