Queensland Economic Update Are there more pots of gold ahead? Katie Dean Economist ANZ Bank 4 November 24
Australian economic growth has been strong and Queensland has been a star performer Economic growth Unemployment rate 6 % annual change QLD AUS 11 1 % 4 9 3 8 7 QLD 2 6 AUS 1 1 2 3 4 4 98 2 4 Sources: ABS, Queensland Treasury
Strong domestic demand has more than offset a disappointing net export performance Sources of Queensland economic growth Queensland exports 1 1 %pt contribution to yearly economic growth Domestic economy 3 2 2 % yearly change Interstate 1 1 - Net exports - -1 International -1 99 1 2 3 4-1 99 1 2 3 4 Sources: Queensland Treasury
A favourable macroeconomic environment should see Queensland continue grow strongly 4 3 2 1-1 -2 1. 1.. Consumer sentiment Index Queensland macroeconomic indicators 97 98 99 1 2 3 4 Housing finance approvals ' (owner-occupier) 4. 3. 3. 2. 2. 1. 1. 6 4 2 ' ANZ newspaper job ads 97 98 99 1 2 3 4 Expected business conditions Index. -2 97 98 99 1 2 3 4 97 98 99 1 2 3 4 Sources: ABS, Westpac/Melbourne Institute, NAB, Economics@ANZ
What is the secret to Queensland s success? 1. Strong population growth 2. An abundance of natural resources Mining Farm Tourism 3. A maturing economy An expansion of the professional services economy
These assets have been borne out in the performance of different industries Queensland industries, average volume growth over last years Mining Finance & insurance Personal & other services Construction Property & bus. services Retail trade Education Health & comm. services Wholesale trade Transport, storage Manufacturing Cultural & rec. services Electricity, gas & water Accom., cafes & rest'ts Agric, forestry & fishing Communication services % change per annum Sources: ABS 2 4 6 8 1 12 14 16
Population growth will continue to be a strong driver of the Queensland economy Population growth Queensland net migration 4. % annual growth 6 ' persons 3. Net overseas Net interstate 3. 2. QLD 4 2. 3 1. 2 1.. AUS 1. 84 88 92 96 4 8 92 96 4 8 Sources: ABS, Economics@ANZ
Population growth won t be confined to the South East ABS projected population growth to 211 Moreton ide Bay - Burnett Brisbane % change per annum 4 Regional population growth % annual average Far North Northern 3 Mackay Fitzroy Darling Downs South West Central West North West -1 1 2 3 4 2 1 NSW Vic Qld WA SA Coastal areas Total outside capital city
Strong population growth is keeping Queensland s population young 16 14 12 1 8 6 4 Aged population, 23 (persons aged 6+ years) % of total population Aus average Demographic change means that Queensland s population, like the rest of Australia s is aging Queensland is a popular place for retirement......but young people are also flocking to the Sunshine State Hence, Queensland has the second youngest population of all the States 2 NSW VIC QLD SA WA TAS Sources: ABS
A young and growing population will keep demand for housing in Queensland strong... Queensland dwelling cycle No. of houses Vacancy rates All rented dwellings 6 4 3 2 ' Underlying demand Completions 7 6 4 % 4qma AUS 1 Shortage 3 2-1 QLD -2 Surplus 1-3 94 98 2 6 94 96 98 2 4 Sources: ABS, Economics@ANZ, REIA, HIA
...and is also boosting retail and consumer services Sources: ABS Retail sales 16 % yearly change (trend) QLD 14 12 1 8 6 AUS 4 2 1 2 3 4 Retail sales in Queensland has been growing almost twice as fast as the national rate This reflects the favourable combination of strong population growth, low unemployment, relatively large tourist flows and increasing household wealth Demographer Bernard Salt estimates that every 1 migrants to Qld creates $7mn in new retail spending and 2mn in new supermarket spending Demand for retail and consumer services will remain strong, albeit at slightly lower levels as population growth eases
Infrastructure is under pressure and must expand Engineering work commenced 9 8 7 6 $mn Roads, subdivisions Railways, harbous Water Electricity 4 3 2 1 99 1 2 3 4 Sources: ABS Traffic jams Blackouts Old rail tracks and long wait times at freight ports Increased pressure on hospitals and schools Aarrgghh! Investment has slowed......but big improvements in infrastructure (across the board) will be required to keep Queensland s star shining Creates opportunities for builders & other trades, engineers, material suppliers, lawyers, architects (and banks!)
The mining sector is of increasing importance to the Queensland economy 6 4 3 2 1 Mining share of State output 9 8 7 6 4 % of GSP 91 93 9 97 99 1 3 Global growth % annual growth -yr average 1 2 3 4 6 Sources: ABS, Datastream, Economics@ANZ The mining industry now accounts for almost 8% of total State output the third biggest industry in Queensland Booming commodity prices and strong growth in major Asian economies has seen investment and employment in mining, processing and distribution boom in recent years Increased capacity and continued solid global demand should support continued strong growth in this industry (production, exports & investment)
Time for the new agriculture Farm share of State output 7 % of GSP 6 4 3 91 93 9 97 99 1 3 Beef prices 8 A$ per tonne 48 38 28 18 8 1 2 3 4 6 Sources: ABS, RBA, Economics@ANZ Agriculture now makes up just 4% of State output Prospects remain bright for the strongly-performing beef industry Some crops & textile fibres have struggled although outlook slowly improving Farmers need a distinct product they can supply to the domestic and international market It s time for the new agriculture Tropical fruits Aquaculture Ethanol?
Prospects are good for tourism, and Queensland can still grab market share Overseas arrivals to Australia State or Territory visited 7 6 Mn Tourism forecasting council forecasts 4 3 % of overseas visitors 3 4 2 2 3 1 2 1 1 97 98 99 1 2 3 4 6 7 8 NSW VIC QLD SA WA TAS NT ACT Sources: TFC, BTR
Professional services are driving Queensland s new economy Office vacancy rates % Melbourne Sydney Brisbane 94 96 98 2 4 Queensland s strong population growth is increasing the demand for professional services And an increasingly skilled labour force, competitive tax environment, relatively cheap commercial rent (cf Sydney and Melbourne) and the resources boom has seen the State become an increasingly popular destination for front offices White collar employment is increasing as is demand for office space This is to be expected for a maturing economy Sources: Property Council of Australia
Where are the risks?
Queensland property is in danger of pricing itself out of the market First home owners, average monthly mortgage repayments % of average monthly disposable income Jun-99 Jun-4 9 9 8 % Relative house prices Historical high 8 7 7 6 6 Ratio of Brisbane house prices to average Australian house prices Sydney Melbourne Brisbane Adelaide Perth Hobart 9 92 94 96 98 2 4 Sources: ABS, HIA, REIA, Economics@ANZ
Is China a threat or an opportunity? The emergence of China has seen demand for minerals soar, creating a boom for Queensland miners and the broader Queensland economy Low value-added manufacturing has so far been the main industry under threat from the rise of China Queensland s economy has only minimal exposure to this industry After growing by around 9% per annum in recent years, Chinese economic growth is expected to slow to 6% in 2 (mainly as investment slows) This pending slowdown in China will mainly hurt suppliers of capital goods, machinery and industrial equipment into China While commodity prices will likely ease, suppliers of raw commodities into China, such as Queensland, still have a lot to gain Indeed, Chinese demand for coal imports is expected to continue accelerating as local demand outstrips local supply Short and longer-term, China is also an increasing export market for tourism and education
Other risks Oil prices Drought Elevated household debt levels The global economy A sharper than expected slowdown would be a cruel blow for Queensland exporters On the other hand, a sharp pullback in oil prices could see the global economy perform better than expected next year The broader Australian economy A slowdown in Australian economic growth will hurt the Queensland economy Although paradoxically, it could provide another boost to the State s population growth (and housing market) as people head north
Summary The Queensland economy should continue to be a strong performer Strong population growth, led by high levels of interstate and international migration, will be an important driver of growth The population is growing up and down the coast, making Queensland Australia s most decentralised State Infrastructure is already under pressure and must be expanded to ensure Queensland s long-term prospects Prospects are good for the mining sector and tourism but agriculture needs to break new ground The services sector, including professional services, will continue to grow in importance An overvalued housing market is one of the most significant risks to Queensland s prospects