Economic Performance of Australia s Cities and Regions Embargoed until Tuesday 5 December 2017

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1 Economic Performance of Australia s Cities and Regions Embargoed until Tuesday 5 December 2017 Media Release Tuesday 5 December 2017: New research released today by SGS Economics & Planning (SGS) reveals that Sydney and Melbourne are driving the national economy, while Perth is in recession. During , 68.8 per cent of national Australian Gross Domestic Product (GDP) growth was generated in Sydney and Melbourne the highest level on record. The economic performance of the regions improved greatly during the last year. Sydney s GDP growth slowed from a very high 3.9 per cent in , to 3.3 per cent in According to Terry Rawnsley, an economist at SGS While growth in the Sydney economy weakened in , Sydney still contributed 41.6 per cent of Australia s total GDP growth in , the highest since The Professional Services and Financial & Insurance Services industries contributed 44 per cent of Sydney s GDP growth. At $81,300, Sydney s GDP per capita is $11,900 higher than the national average the highest margin since and $30,200 higher than Regional NSW. After weak GDP growth over and in Regional New South Wales, the last two years have seen stronger growth in GDP of 3.6 per cent ( ) and 1.5 per cent ( ). Melbourne contributed 27.1 per cent of all Australian GDP growth in This 2.8 per cent increase was impacted heavily by the closure of car production lines, which had a large impact on the economy (a 0.6 percentage point detraction). Manufacturing s share of Melbourne s economy is at a record low of 6.3 per cent. After years of being the largest industry, Manufacturing is now Melbourne s fifth largest industry. Professional Services (0.7 percentage points) was the largest contributor to Melbourne s GDP growth. A range of other industries including Health care, Public Administration, Wholesale and Construction contributed between 0.3 and 0.4 percentage points to growth. Regional Victoria saw very strong growth of 5.8 per cent during , the highest growth rate since Almost 40 per cent of this growth came from very strong agricultural production and a boost in associated food manufacturing. Manufacturing in Regional Victoria saw an increase in production in , even with the closure of the Ford plant in Geelong. Perth was in a recession during with a decline in GDP of 3.5 per cent. This is a significantly larger than the 1.5 per cent decline that Perth experienced during the last national recession in Mr Rawnsley explained the scale of the decline in Perth s GDP. I had to go back to Melbourne in to find a bigger decline in a city s GDP. Perth s result followed two years which had the lowest growth rates since the recession. In , Regional Western Australia GDP also decreased with the region experiencing the largest (1.4 per cent) recession on record. This was due to the end of the mining construction boom. Despite strong increases in Agriculture (1.2 percentage points) and Mining (0.9 percentage points), the impact of the decline in Construction (4.8 percentage points) resulted in Regional Western Australia s economy contracting. The Construction industry in Regional Western Australia is back at levels not seen since before the start of the mining boom in

2 While not as bad as Regional Western Australia, Regional Queensland also saw a decline related to the end of the mining construction boom. While Mining (3.0 percentage points) production increased strongly in , the overall economy remains weak in Regional Queensland. Brisbane s GDP growth rate was 1.4 per cent in Brisbane s GDP per capita fell (-0.6 per cent) in , which was the fifth time in the last ten years that GDP per capita has contracted. The Brisbane economy was impacted by a decline in a number of industries, including Mining (-0.3 percentage points) due to reduced head office activity, Construction and Manufacturing (both -0.2 percentage points). Mr Rawnsley described how the large disparity in growth rates presents a challenge for the Reserve Bank of Australia. The current RBA interest rate is too low for Sydney and Melbourne and too high for most of the rest of the country. To highlight the economic divergence, a hypothetical situation where each region has its own central bank setting local interest rates was created. In this hypothetical situation, had there been a Reserve Bank of Sydney over the past year they would have set their rates set 3.50 per cent, a reduction of 0.25 percentage points from the previous year. A Reserve Bank of Melbourne would have kept their hypothetical rates set at 2.25 per cent. In the hypothetical situation the rest of the country, with the exception of the North Territory and Canberra, would have rates of between 0.25 per cent and 1.0 per cent. TABLE 1 HYPOTHETICAL REGIONAL INTEREST RATES Region Sydney 3.50% 3.50% 3.75% 3.50% Regional NSW 1.75% 1.25% 0.25% 0.50% Melbourne 2.00% 2.00% 2.25% 2.25% Regional Vic 1.50% 1.00% 0.25% 0.50% Brisbane 2.25% 1.00% 0.25% 0.25% Regional QLD 2.00% 1.00% 0.25% 0.25% Adelaide 1.25% 1.00% 0.25% 0.25% Regional SA 1.25% 1.00% 0.50% 1.00% Perth 2.25% 1.25% 0.50% 0.25% Regional WA 4.00% 2.75% 0.50% 0.25% Tasmania 1.00% 1.00% 0.25% 0.25% Northern Territory 5.00% 5.00% 3.50% 3.25% Canberra 2.00% 1.75% 1.50% 2.00% Australia 2.50% 2.00% 1.50% 1.50% Source: SGS Economics & Planning and Reserve Bank of Australia For more information please contact Terry Rawnsley on or Terry.Rawnsley@sgsep.com.au

3 Key Points New South Wales In Sydney s GDP was $417.9 billion and represented 24.7 per cent of national GDP. Sydney represents 74.0 per cent of New South Wales s GDP. Sydney s GDP growth slowed in from a very high 3.9 per cent in to 3.3 per cent. Sydney contributed 41.6 per cent of GDP growth, the highest since The Professional Services contribution (0.8 percentage points) to Sydney s GDP growth was the highest since Financial services share of Sydney s economy is at a record high of 15.2 per cent. Manufacturing share of Sydney s economy has been at 5.1 per cent for the last three years. Sydney s labour productivity grew faster (1.9 per cent) than the national average (0.6 per cent) and is now at a record high of $92.70 per hour worked. At $81,300, Sydney s GDP per capita is $11,900 higher than the national average the highest margin since and $30,200 higher than Regional NSW. Regional NSW GDP grew by 1.5 per cent, a fall from 3.6 per cent growth in Victoria In Melbourne s GDP was $324.9 billion and represented 19.2 per cent of national GDP. Melbourne represents 81.8 per cent of Victoria s GDP. Melbourne contributed 27.1 per cent of national GDP growth. Melbourne s 2.8 per cent GDP growth rate was down on the 4.4 per cent in the previous year. Professional Services (0.7 percentage points) was the largest contributor to growth. This was the largest contribution from this industry since A range of other industries including Health care, Public Administration, Wholesale and Construction contributed between 0.3 and 0.4 percentage points to growth. The closure of car production lines impacted Manufacturing which fell 8.2 per cent. This had a large impact on Victoria s economy (a 0.6 percentage point detraction). Manufacturing s share of Melbourne s economy is at a record low of 6.3 per cent and after years of being the largest industry, Manufacturing is now Melbourne s fifth largest industry. Melbourne s labour productivity remained unchanged at $80.60 during Melbourne s GDP per capita fell by 0.1 per cent. In six of the past ten years GDP per capita has contracted in Melbourne as population growth outstripped economic growth. Although, in , GDP per capita was 3.2 per cent higher than in Melbourne s GDP per capita of $66,800 is $2,500 below the national average saw very strong growth for Regional Victoria of 5.8 per cent, the highest growth rate since Almost 40 per cent of this growth came from very strong agricultural production and a boost in associated food manufacturing. Agricultural production increased by almost 20 per cent in Manufacturing in Regional Victoria saw an increase in production in , even with the closure of the Ford plant in Geelong. Manufacturing in Regional Victoria has fallen by 12.5 per cent since Queensland In Brisbane s GDP was $157.5 billion and represented 9.3 per cent of national GDP. Brisbane represents 48.8 per cent of Queensland s GDP.

4 Brisbane contributed 6.7 per cent of GDP growth. Brisbane s 1.4 per cent GDP growth rate was lower than the previous year (1.9 per cent). The largest contributors to Brisbane s growth in was Professional Services (0.6 percentage points), Health Care (0.6 percentage points), Financial & Insurance services (0.4 percentage points) and Public Administration and Transport (both 0.2 percentage points). Significant drags on the Brisbane economy included Mining (-0.3 percentage points) due to reduced head office activity, Construction and Manufacturing (-0.2 percentage points). Brisbane s GDP per capita fell (-0.6 per cent) in , which was the fifth time in the last ten years that GDP per capita has contracted. Regional Queensland also saw a decline in mining related construction. Construction detracted 1.8 percentage points from GDP growth. While Mining production (3.0 percentage points) increased strongly in , the overall economy remains weak in Regional Queensland. South Australia In , the GDP of Adelaide grew by 0.9 per cent. While South Australia grew by 2.2 per cent, of which 1.4 percentage points came from Agriculture, forestry & fishing. Adelaide represents 76.4 per cent of South Australia s GDP. Health Care (0.6 percentage points) and Wholesale Trade (0.4 percentage) made the largest contribution to Adelaide s GDP growth in Manufacturing contributed (0.1 percentage points) to growth, the largest contribution from this industry since Construction (-0.6 percentage points) made a significant detraction from GDP growth. This is likely due to the completion of the new Royal Adelaide Hospital during Manufacturing significantly decreased its share of Adelaide s GDP over the past two decades, from 17.9 per cent to 6.4 per cent of GDP. Regional South Australia grew by 6.6 per cent, driven by increased agricultural production. Perth In Perth s GDP was $141.3 billion and represented 8.3 per cent of national GDP. Perth represents 61.2 per cent of Western Australia s GDP. Perth was in a recession during with a decline in GDP of 3.5 per cent. This is a significantly larger than the 1.5 per cent decline that Perth experienced during the last national recession in The results followed two years which had the lowest growth rates since the recession. The decline in Perth s economy in was reflected across most sectors. Financial & Insurance Services (0.6 percentage points), Health care (0.5 percentage points) and Education (0.3 percentage points) were the only industries that made any meaningful contribution to GDP growth. Construction detracted 1.5 percentage points from Perth s GDP growth. Professional Services (1.1 percentage points) and Public Administration (0.6 percentage points) were other large contributors to the decline in GDP. The decline in Public Administration, followed a 0.7 percentage points positive contribution in In , GDP in Regional Western Australia also decreased. Regional Western Australia experienced the largest (1.4 per cent) economic recession on record. Despite strong increases in Agriculture (1.2 percentage points) and Mining (0.9 percentage points), the impact of a decline in Construction (4.8 percentage points) resulted in the Regional Western Australia economy contracting. The Construction industry in Regional Western Australia is back at levels not seen since before the start of the mining boom in

5 Canberra In Canberra s GDP was $37.6 billion and represented 2.2 per cent of national GDP. Canberra s GDP growth was 4.6 per cent in , higher than the ten-year average of 3.2 per cent. In , Public Administration, Canberra s largest industry, made no contribution to growth. The highest contribution to Canberra s GDP growth was Professional services (2.7 percentage points) which accounted for almost 60 per cent of all growth. Only twice before has an industry in Canberra made a larger contribution to growth. This was Public Administration in (2.8 percentage points) and (4.0 percentage points). Public Administration & Safety makes up nearly a quarter of the Canberra s economy compared with the national average of around 6 per cent Tasmania In Tasmania s GDP was $28.6 billion and represented 1.7 per cent of national GDP. Tasmania s GDP growth was 1.1 per cent in compared to the ten year average of 1.5 per cent. In , the GDP per capita growth in Tasmania was 0.5 per cent compared to the Australian growth rate of 0.4 per cent. In six of the past ten years the GDP per capita in Tasmania has outperformed the national growth rate. In , Public Administration (0.8 percentage points), Health care (0.7 percentage points), and Agriculture (0.35 percentage points) were the biggest contributors to Tasmania s GDP growth. Financial & Insurance Services were the most significant drag on Tasmanian growth (-0.7 percentage points). For more information please contact Terry Rawnsley on or Terry.Rawnsley@sgsep.com.au