Australia: Growth to remain solid across large south-eastern states - NAB

Research Team at NAB expects that Australian growth will remain solid across the large south-eastern states, while there are signs of stabilisation in mining states as the end of the downswing in resource-related investment approaches.

Key Quotes

“Looking forward, Victoria and New South Wales will remain ahead of the pack in terms of state final demand growth, although Queensland will experience the strongest growth overall thanks to resource exports. While momentum has slowed a little from the rapid growth rates in 2015-16, Victoria and NSW will continue to benefit from buoyant population growth (especially Victoria), strong services activity and infrastructure expenditure.  Non-mining business investment in these states has also started to strengthen and will gradually pick up speed, although this will be offset by residential construction peaking and no longer contributing as fervently to growth. The ACT economy is also gradually improving thanks to a more stable labour market and stronger housing demand.”

“Queensland and WA (and to a lesser extent NSW) are currently receiving an income boost from higher bulk commodity prices, which are flowing through to corporate profits and state government revenue. Resource export volumes will also add strongly to real gross state product in Queensland, WA and the NT as large (mostly LNG) projects are completed through 2017. These states and territories are also well advanced through the downswing in mining investment, although the outlook for mining investment is unlikely to improve given our expectation that the current surge in bulk commodity prices will be temporary.  Job losses in mining (and weaker population growth) will continue to pose a challenge to domestic demand, particularly dwelling construction in mining regions and consumer spending in WA, the NT, and parts of Queensland. That said, stabilisation in some high frequency data indicates that the worst of the downturn may be behind us.”

“Tourism spending (both domestic and international) and education exports will continue to expand in most states and territories, although the pace of growth is easing somewhat and will be dependent on the path of the Australian dollar.”

“Infrastructure spending is also ramping up, particularly in NSW and Victoria, financed in part by strong growth in stamp duty revenue and royalties in some states. The SA government is attempting to utilise infrastructure spending to offset the impact of the closure of auto manufacturing and until shipbuilding activity picks up. That said, for SA, as for Tasmania, demographics and a concentrated industry structure will remain challenges.”

“In 2016, agriculture enjoyed a generally wet winter and spring, especially in NSW, Victoria, Queensland, SA and Tasmania, although WA was dryer. Looking ahead to 2017, the Bureau of Meteorology forecasting a hot, dry autumn for the whole continent (except far north Queensland and northern NT) and likely El Nino by winter – a worrying outlook for all farmers.”