QTPA Member Alert | Australian East Coast State Economies Update, June 2012 (14/8/2012)

Australian East Coast State Economies Update, June 2012

The East Coast Update will be of interest especially when Western Australia is performing brilliantly with the mining boom.

Queensland Current Conditions

Economic activity is expanding at a strong pace in Queensland due to international demand for the State’s natural resources. This has led to a surge in mining and related infrastructure investment (e.g. in freight transport & facilities) which will in time result in a dramatic rise in production and export capacity. State final demand fell by 0.8% in the March quarter 2012 though remains 7.5% higher over the year, driven in large part by private capital expenditure which is 23.2% higher over the year. Annual growth rates for QLD are somewhat inflated however, by the ‘base effect’ of comparing March 2012 to March 2011, which was badly flood affected.

Private investment (capital expenditure) is 23% higher over the year; housing investment is 5.2% higher over the year; and building approvals which provide an indication of future housing investment activity are close to 5% higher over the year. In addition to the high import intensity of mining investments and the time taken for these investments to translate into increased production capacity, production and export levels in Queensland have also been hampered by adverse weather events and other supply-side disturbances. As noted by the Reserve Bank of Australia in the May 2012 Statement of Monetary Policy.

NSW Outlook

The New South Wales Treasury expects a gradual pickup in household and business confidence, an upturn in the housing cycle and a pipeline of mining investment projects to help boost growth in real gross state product to around average/trend by 2013-14. Consumer prices and wage inflation are expected to remain contained over the next few years, growing at around 2.5% and 3.5% respectively.

Building approvals indicate the NSW construction cycle may not have hit the bottom yet. Even so, the New South Wales Treasury expects gross state product (GSP) to be supported by a recovery in dwelling investment, in response to tight rental market conditions, relatively low interest rates, continued population growth and increased measures in the State’s most recent Budget to encourage new home construction. GSP is expected to be supported by a strong pipeline of engineering construction projects.

Current projects under construction including coal mines (the largest being Xstrata’s Ravensworth North and Ulan West projects), coal infrastructure expansions (ports and rail) and Newcrest’s Cadia East gold mine  expansion. The Bureau of Resources and Energy Economics (BREE) estimates that there is $20.1 billion worth of mining projects in New South Wales yet to begin construction. In contrast, the pipeline of non-mining building is very weak and points to no substantial recovery until at least 2013-14.

Victoria Current Conditions

Economic activity in Victoria weakened through the second half of 2011 (see Table 5 and appendix table for further details), though rebounded in the March quarter 2012, with state final demand growing by 1.8% in the quarter (2.7% p.a.). Similar to New South Wales, economic activity in Victoria has been supported by modest though sustained growth in household consumption spending and strong exports growth. On the other hand, private sector investment has been weak reflecting low household and business confidence levels and the downturn in the residential housing construction cycle, relative to the ‘boom’ in construction over the previous 2 to 3 years.

Jim Vaughan

Chief Executive Officer