South Australia Economic Update
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South Australia Economic Update May 2016 South Australia Snapshot Economic Indicators Rank* Gross State Product AUDbn 2014-15 99 fifth Share of GDP 2014-15 6.1% fifth GSP per capita AUD 2014-15 58,177 seventh Employment y/y (t) Mar-16 1.0% fifth Share of employment Mar-16 6.8% fifth Unemployment rate (t) Mar-16 7.2% highest Population m Sep-15 1.7 fifth Share of population Sep-15 7.1% fifth Consumer Price Index y/y Dec-15 1.0% third lowest S&P's credit rating AA (stable) Moody's credit rating Aa1 (stable) Government Operating balance AUDm 2015-16 355.0 Net debt NFPS AUDbn 2015-16 10.6 Government Labor since 2002 Premier The Hon Jay Weatherill MP Leader of opposition Mr Steven Marshall MP Treasurer The Hon Tom Koutsantonis MP 2016-17 budget 23 June 2016 Next election 17 March 2018 * Rank among all eight states and territories 1 Source: ABS, State budget, State parliament, S&P, Moody’s, ANZ Research South Australia – Not bad, all things considered • Economic conditions remain challenging. The headwinds facing the mining, utilities, and manufacturing sectors continue and seem to be intensifying. The uncertainty over the future of the Whyalla steel works, closure of port Augusta power plants, and shuttering of Holden are just a few of the challenges currently facing South Australian businesses. • A positive sign for the defence industry is the announcement by the Commonwealth Government that the construction of offshore patrol vessels (AUD3bn) will begin in Adelaide starting in 2018. While not large in a macro sense - the additional work will help to keep the industry running between the completion of the Air Warfare Destroyers and the start-up of construction on the frigates in 2020. An announcement on the details of the submarine build is expected in the next few weeks. • Last year was peppered with news of job cuts and coincided with a sharp increase in the unemployment rate. Since then, conditions in the labour market have improved a little, but the unemployment rate remains very high and could remain so given the challenges noted above. • On a positive note, consumer spending has been surprisingly strong. Moreover, motor vehicle sales have increased and retail sales have been fairly robust. Building approvals have also remained at high levels and are suggestive of a more gradual slowing in residential construction activity. However, we remain wary of ongoing strength in these areas due to weak income growth and house price growth. • The state government is providing stimulus. Construction work on roads has picked up, driven by the Northern roads project. The budget profile for infrastructure spending is suggestive of a further pick-up in construction. 2 The ANZ Stateometer shows that economic activity has improved recently despite remaining sluggish overall. ANZ South Australia Stateometer 3 2 1 month average month - 0 -1 Annual rate change, 3 of rate Annual -2 -3 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 3 Source: ANZ Research Economic activity has been supported by solid household spending, an improvement in net exports, and public spending. However, conditions remain challenging over the next couple of years. State final demand + net international exports SA - State final demand + net international exports 10 8 8 6 6 4 2 4 0 2 (sa) y/y % change -2 0 -4 -2 09 10 11 12 13 14 15 04 05 06 07 08 09 10 11 12 13 14 15 16 Household consumption Dwelling investment Business investment NSW VIC QLD SA Public final demand Net exports SFD+NE Value of goods exports Gross State Product forecasts 13 305 6 12 270 5 11 235 AUDbn,12 4 10 200 - month sum month month sum month - 3 % change % change 9 165 2 AUDbn, 12 8 130 1 7 95 0 6 60 92-93 95-96 98-99 01-02 04-05 07-08 10-11 13-14 16-17f 04 05 06 07 08 09 10 11 12 13 14 15 16 South Australia goods exports, monthly Australia goods exports, monthly SA Australia 4 Source: ABS, ANZ Research Business conditions remain weak and have eased over the first few months of 2016. Firms’ reported capacity utilisation remains low. On the bright side, domestic and international tourism have improved alongside the lower AUD. Surveyed business conditions Firms’ reported spare capacity 30 88 Less spare capacity 25 86 20 15 84 month average month - 10 82 5 %, trend 80 0 -5 78 -10 76 Net balance of 3 respondents, -15 -20 74 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 91 94 97 00 03 06 09 12 15 92 95 98 01 04 07 10 13 16 Business conditions - Australia Business conditions - SA NSW VIC QLD SA WA TAS Australia Domestic and international tourist expenditure by state International education 40 70 0.4 35 60 0.5 50 30 0.6 40 25 AUD/USD(inverted) 30 0.7 20 20 15 0.8 10 10 0 0.9 latest 3 months % change months 3 latest ended December 2015 2015 ended December (%) - 5 - to -10 - 1.0 Year 0 -20 Year 1.1 -5 -30 -10 -40 1.2 TAS VIC SA NSW QLD ACT NT WA 03 04 05 06 07 08 09 10 11 12 13 14 15 16 International Domestic International student enrolments in SA (lhs) AUD/USD (rhs) 5 Source: ABS, NAB, Jones Lang Lasalle, ANZ Research Building construction work has fallen sharply as construction on the Adelaide Hospital is wound up, however, work in education has increased. Public sector investment has supported engineering construction work on roads. Residential approvals and work done Building work yet to be done 0.75 1500 2.5 0.65 1200 2.0 Adelaide hospital Trend number Trend 0.55 900 1.5 Trend AUDbn level Trend AUDbn 0.45 600 1.0 0.35 300 0.5 0.25 0 0.0 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Work done Approvals (8 months ahead) Commercial Industrial Aged care and health Education Tourism/recreation Engineering work yet to be done Budgeted public investment expenditure 3.0 3.0 2.5 2.5 2.0 2.0 1.5 AUDbn 1.5 1.0 4 quarter average AUDbn average 4 quarter 1.0 0.5 0.5 0.0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 0.0 Roads highways & subdivisions Bridges, railways & harbours 2005-06 2008-09 2011-12 2014-15 2017-18 Utilities Heavy Industry Recreation and Other Total State and local government investment Budgeted investment expenditure 6 Source: ABS, SA budget papers, ANZ Research House price growth has picked up in Adelaide in recent months, however, the regions are not faring as well. House price growth, Adelaide/SA Investor vs owner-occupier housing finance 20 0.7 15 0.6 10 0.5 0.4 5 0.3 0 0.2 House prices (y/y %change) (y/y pricesHouse -5 South $ Australia: billion (trend) 0.1 -10 06 07 08 09 10 11 12 13 14 15 16 0.0 Adelaide Rest of South Australia 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Australian capital cities weighted average Australian non-capital city regions Investor First home buyer Upgrader (excl. refin.) Rent vs mortgage interest Adelaide: actual vs ‘fair value’ house prices 100 $800,000 * Represents the average household's purchasing power over the median priced home ** Calculated using trend discounted variable bank mortgage rate *** Calculated using average household disposable income 80 $700,000 Forecast $600,000 60 $500,000 40 $400,000 20 $300,000 $200,000 0 $100,000 (% higher/lower than rent) than (% higher/lower Mortgage interest payments -20 $0 -40 -$100,000 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 -60 Interest rate contribution to simulated house price** 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 Income growth contribution to simulated house price*** Adelaide Australian capital city average Base house price (March 1986) Actual house price 7 Source: ABS, Core Logic RPData, RBA, Residex, ANZ Research Household consumption has been the key driver of growth. Motor vehicle sales have increased and retail sales have been fairly solid. But a weak wages bill doesn’t bode well for consumption going forward. Household consumption SA essential and discretionary consumption 7 14 6 12 10 5 8 4 6 3 4 2 2 y/y % change (trend) %change y/y 1 (trend) %change y/y 0 0 -2 -1 -4 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 South Australia Australia (excluding South Australia) South Australia Australia (excluding South Australia) Motor vehicle sales Compensation of employees and consumption 170 240 12 160 220 10 8 150 200 January 2000 = 100 Trend, 6 140 180 4 130 160 2 0 120 140 y/y % change -2 110 120 Trend, January 2000 = 100 Trend, -4 100 100 -6 90 80 -8 00 02 04 06 08 10 12 14 16 01 03 05 07 09 11 13 15 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 NSW Vic ACT SA Tas Total Qld WA NT Household consumption Compensation of employees 8 Source: ABS, ANZ Research Labour market conditions have also improved in recent months after deteriorating markedly over 2014-15, but unemployment remains high amidst ongoing structural change.