The Queensland Economy approaches a ‘Fork in the Road’
The announcement of a fast-tracking of $4 billion of infrastructure projects across Queensland is a welcome development given the state’s poor performance across employment, private investment and business confidence.
The announcement of big-ticket construction ventures and bringing forward so-called ‘shovel ready’ projects remains a key theme currently being touted by State and Federal politicians in boosting economic activity.
Australia’s leadership across all levels of government confront the multifaceted challenge of boosting productivity to maintain competitiveness, creating the environment to foster high-skilled and high-paying jobs whilst dealing with the near-term challenge of growing the economy.
The headline numbers from the national accounts data published by the Australian Bureau of Statistics (ABS) reveal that to June 2019 the Queensland economy grew year on year by a paltry 1.4% to $357.044 billion.
The mining sector highlighted its critical importance to the state economy as the largest contributor to Gross State Product (GSP) over the year.
Ownership of dwellings, health care and social assistance, construction, and financial and insurance services rounded out the top five industries on this measure.
GSP per capita fell over the year by 0.4%, indicating that the living standards of Queenslanders declined as growth in production was not sufficient to cover population growth within the State of around 1.8%.
Interestingly, living standards typically fall during periods where there are significant downturns in the economy.
The slowdown in activity in the resources sector that occurred in 2014-15 followed a sharp drop in commodity prices and the conclusion of the LNG investment phase weighed heavily on the Queensland economy.
More recently, the prospect of a looming slowdown in key agricultural sectors following a period of prolonged drought is according to the Commonwealth Bank estimated to cost the national economy as much as $12 billion.
Policy makers as well as the Reserve Bank have sought to assuage public fears of high levels of household debt with a narrative that focuses on a suite of projects nationally that will boost the economy and provide a level of comfort aimed at boosting sentiment amongst the country’s two million small businesses.
In Queensland, the value of overall construction work done shows a slowdown in activity over the last five years with activity in the sector falling 13% in the 12 months to June 2019 on a seasonally adjusted basis.
Private sector business investment figures further show that since the substantial investment phase during the development of the State’s LNG industry, which began in 2011 and wound up during 2015, growth in building investment and capital expenditures by the private sector has been relatively flat over the past decade.
In terms of the state’s public sector, in real terms the headline-grabbing, billion-dollar infrastructure investment price tags have disappointingly been little more than announcements around core operating responsibilities for government.
The value of work commenced in Queensland indicates that in nominal terms (taking account of inflation), the value of government investment in the State has fallen in real terms over the decade.
Queensland’s population growth, as one of the highest in the nation, could conceivably heighten concerns around the prospect of productivity losses in the southeast corner of the State due to under-investment in infrastructure spending.
Relative to comparable states, Queensland public sector investment remains substantially less than New South Wales, but in general is greater than Victoria.
Residential building approvals continue to be a leading indicator of future activity in the construction sector.
Accordingly, data from the ABS shows that there has been a 19% decline year-on-year in building approvals in the State including a 15% drop in houses and a 26% decline in other dwellings such as apartments, which are typically purchased as investment properties.
Reserve Bank of Australia governor, Dr Philip Lowe has repeated the Central Bank’s concerns about tepid wage growth across the national economy and how it is impacting lower consumer spending levels across the economy.
Figures from the ABS do show that wage growth in Queensland is historically low. Nevertheless, so is inflation.
In fact, nominal wage growth indeed remains greater than the price increases in the value of the goods and services sold by businesses in Queensland and that’s especially the case for workers in the public sector.
Australia and indeed the Queensland economy observes that the Federal Government’s tax cuts have failed to stimulate business conditions amidst record levels of household debt, a lack of demand-pull inflation due to too few significant infrastructure projects across the State and persistent drought.
Low wage growth implies consumers have relatively less to spend at checkouts, and retail trade data from the ABS indicates that subdued sales growth has been a persistent theme for the State.
This is especially true for businesses directly exposed to an ailing residential housing market including furniture, floor coverings and homeware, household goods, as well as hardware, building and garden supplies.
With retail sales figures growing year-on-year at 4.4%, these are arguably the best prints among what are a very disappointing set of indicators of economic activity in Queensland.
However, 36% of the growth in retail sales has been in supermarkets, representing household budgets that have adopted a more prudent approach to the discretionary spending in Queensland’s retail outlets.
To follow through on the data over the last 12 months, the state’s unemployment rate will continue to rise as businesses stop employing and cut costs to survive.
Queensland holds the unenviable position of the State with the highest unemployment rate in the country coupled with the highest levels of commercial bankruptcies, which data from the Australian Financial Security Authority shows are going bust at a rate of 4 businesses per day.
Queensland’s economic challenge is significant and observes a State that must do everything possible to boost confidence in the near term and frame a strategy that will incentivise investment.