Northern Territory Economic Update May 2016 Northern Territory Snapshot Economic Indicators Rank* Gross State Product AUDbn 2014-15 22 eighth Share of GDP 2014-15 1.4% eighth GSP per capita AUD 2014-15 92,188 second Employment y/y (t) Mar-16 -2.5% eighth Share of employment Mar-16 1.1% eighth Unemployment rate (t) Mar-16 4.5% second lowest Population m Sep-15 0.24 eighth Share of population Sep-15 1.0% eighth Consumer Price Index y/y Dec-15 0.5% lowest S&P's credit rating Not rated Moody's credit rating Aa1 (negative) Government Operating balance AUDm 2015-16 248.0 Net debt NFPS AUDbn 2015-16 1.9 Government Country Liberal Party since 2012 Chief Minister The Hon Adam Giles MLA Leader of opposition The Hon Michael Gunner MLA Treasurer The Hon David Tollner MLA 2016-17 budget April 2016 Next election 27 August 2016 * Rank among all eight states and territories 1 Source: ABS, State budget, State parliament, S&P, Moody’s, ANZ Research Northern Territory – foot off the gas • The near-term outlook is challenging. Construction activity at the Ichthys liquefied natural gas (LNG) project has been an important driver of growth. While construction on Ichthys is ongoing, its contribution to growth is waning as it approaches completion. • The NT economy is highly exposed to a slowing in construction activity. Construction’s share of total employment has risen to a very high level (~12%). Waning housing construction and mining- related investment presents a transitional challenge for the NT economy. • The Territory has seen some improvement in international inbound tourism. Domestic tourism has only improved modestly, however, given weak income growth nationally and the somewhat discretionary nature of trips to the Top End. • Overall conditions have weakened in recent months. The ANZ Stateometer has continued to move further away from the trend-line as labour market, housing activity, and export data continue to weaken. • Stepping back, navigating the up and down of the massive Ichthys project and related activity was always going to be challenging for the small NT economy. Moreover, the Territory’s economy has always tended to be quite volatile, the recent experience being no exception. • The Territory’s locational advantage vis-à-vis the strongly growing Asian economies is a medium-term advantage. 2 The ANZ Stateometer suggests that underlying economic activity in the Northern Territory is below its trend rate and has slowed since mid 2015. ANZ Northern Territory Stateometer 1.5 1.0 0.5 0.0 -0.5 Annual rate of change, 3 month average month 3 change, of rate Annual -1.0 -1.5 03 04 05 06 07 08 09 10 11 12 13 14 15 16 3 Source: ANZ Research Economic growth has weakened in the Northern Territory. Net exports have contracted and business investment has weakened. Output growth State final demand 16 16 32 14 14 28 24 12 12 20 10 10 16 y/y % change (trend) 8 8 12 6 6 % change % change 8 4 4 4 2 0 2 (trend) % change y/y 0 -4 0 -2 -8 -2 -4 -12 -4 92-93 94-95 96-97 98-99 00-01 02-03 04-05 06-07 08-09 10-11 12-13 14-15 16-17f -6 -16 04 05 06 07 08 09 10 11 12 13 14 15 16 04 05 06 07 08 09 10 11 12 13 14 15 16 Northern Territory Australia NSW VIC QLD WA SA TAS NT ACT NT merchandise exports State final demand plus net exports 8 40 7 30 6 20 5 month sum month - 10 4 0 3 y/y % change (sa) % change y/y AUD billions, 12 billions, AUD 2 -10 1 -20 05 06 07 08 09 10 11 12 13 14 15 0 Household consumption Dwelling investment Business investment 04 05 06 07 08 09 10 11 12 13 14 15 16 Public final demand Net exports SFD+NE Northern Territory goods exports, monthly *December 2015 net exports is estimated 4 Source: ABS, ANZ Research Exports from the Ichthys LNG project are expected to begin around Q3 2017 but investment spending has already passed its peak. Ichthys is more than 80% complete. NT investment Private non-residential building approvals 0.4 4 3.0 200 NT dwelling investment NT non-residential investment Business 2.4 160 0.3 3 AUDbn per quarter, real 1.8 120 AUDm 0.2 2 AUDbn Business - building 1.2 80 & construction AUDbn per quarter, real quarter, per AUDbn 0.1 1 0.6 40 0.0 0 Public 0.0 0 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 00 03 06 09 12 15 01 04 07 10 13 16 Australia (excluding Northern Territory - lhs) Northern Territory (rhs) Real capex by state LNG projects 18 60 16 50 14 12 40 10 30 8 AUDbn 6 20 AUDbn per quarter, real quarter, per AUDbn 4 10 2 0 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Gorgon Ichthys Wheatstone APLNG QCLNG GLNG Prelude NSW Vic Qld SA WA Tas NT Work yet to be done Work done 5 Source: ABS, Deloitte Access Economics, BREE, company reports, state governments, ANZ Research Employment growth has been volatile but is currently weak. Nonetheless, the unemployment rate is hovering a little above 4%. Employment growth Unemployment rate 8 8 6 7 4 6 2 5 0 Per cent (trend) cent Per 4 y/y % change (trend) % change y/y -2 3 -4 2 06 07 08 09 10 11 12 13 14 15 16 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Northern Territory Australia (excluding Northern Territory) Northern Territory Australia (excluding - Northern Territory) Job ads Unemployment by region 180 160 140 120 100 80 2010 = 100 = 2010 60 40 20 0 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 NSW Vic Tas ACT SA Qld WA NT Australia 6 Source: ABS, SEEK, ANZ Research Construction employment has risen to a very high share of total employment in the Territory. Around 8,000 workers will be employed on the Ichthys project at Bladin Point until mid-2016. Construction employment share Mining employment 13 13 140 21 Construction's share of totalemployment, trend 12 12 120 18 11 11 Employed persons (000s, trend) 100 15 10 10 80 12 9 9 8 8 60 9 7 7 40 6 6 6 Employed persons (000s, trend) (000s, persons Employed 20 3 5 5 Construction's share of total employment, trend employment, total of share Construction's 4 4 0 0 85 89 93 97 01 05 09 13 85 89 93 97 01 05 09 13 84 87 90 93 96 99 02 05 08 11 14 85 88 91 94 97 00 03 06 09 12 15 Australia WA Queensland Victoria NSW SA NT Tasmania ACT NSW VIC QLD WA SA (RHS) TAS (RHS) NT (RHS) Mining employment, % of total Employment by industry 10 9 8 7 6 5 Per cent Per 4 Employed 3 2 1 0 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 NSW Victoria Queensland SA WA NT Tasmania 7 Source: ABS, ANZ Research Household consumption growth was anemic through 2015 as household income growth slowed sharply. Household spending is likely to remain weak in the midst of a slowing mining sector. Compensation of employees Household consumption 20 16 14 15 12 10 10 8 6 5 4 y/y % change (trend) % change y/y y/y % change (trend) % change y/y 2 0 0 -5 -2 01 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 Northern Territory Australia (excluding Northern Territory) Northern Territory Australia (excluding Northern Territory) Retail sales Motor vehicle sales 15 170 240 160 220 12 150 200 Trend, January 2000= 100 9 140 180 6 130 160 120 140 3 y/y % change (trend) % change y/y 110 120 Trend, January 2000 = 100 2000 January Trend, 0 100 100 -3 90 80 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 00 02 04 06 08 10 12 14 16 01 03 05 07 09 11 13 15 Northern Territory Australia (Excluding Northern Territory) NSW Vic ACT SA Tas Total Qld WA NT 8 Source: ABS, ANZ Research House prices and rents in Darwin are falling and the residential vacancy rate is very high. Population growth has slowed sharply. Leaving Ichthys workers will become another challenge for Darwin’s housing market. House price growth Home price growth and days on market 30 30 70 25 25 80 20 20 90 Number of days (average) 15 15 100 10 5 10 110 0 % change y/y 5 120 -5 0 130 House prices (y/y % change) pricesHouse -10 -5 140 -15 -20 -10 150 05 06 07 08 09 10 11 12 13 14 15 16 06 07 08 09 10 11 12 13 14 15 16 Darwin Australian capital cities weighted average Home prices: Darwin (lhs) Days on market: NT (inverted, rhs) Investor vs owner-occupier housing finance Residential vacancy rates 9 140 8 120 7 100 6 80 5 4 60 3 40 % of total rental stock rental total % of 2 Northern Territory: $ million (trend) million$ Territory: Northern 20 1 0 0 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 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Investor First home buyer Upgrader (excl.