The South Australian economy is at a 23 year low, a key economic report says.
Releasing its latest review of the local economy, the South Australian Centre for Economic Studies finds that the state economy experienced its largest downturn since the 1990 recession, prompting the need for further government stimulus.
The centre’s biannual Economic Briefing Report, is released today.
“Demand in South Australia contracted significantly over the past year,” it said.
“Real state final demand (SFD) in the March quarter was down 2.6 per cent from the corresponding period a year earlier.
“This outcome represents the largest annual fall in SFD for the historical period covered by the modern National Accounts data.”
The State Government has previously rejected the technical definition of a recession, adding that while unemployment remains steady then the economy should be regarded as stable.
The report makes a similar observation.
“While the sustained decline in demand indicates that the South Australian economy is in recession, the report’s authors note that making such a firm conclusion is complicated by the lack of quarterly data on gross state product, the welcome resumption in employment growth since late spring (which is at odds with the trend in final demand) and differing views on how to technically define a ‘recession’.
“The contraction in final demand over the past year was wholly due to a reduction in investment activity, with household consumption growing at a modest pace and government consumption expenditure essentially flat.
“The decline in investment activity was largely a consequence of lower public sector capital expenditure.
“This fall would in part reflect the withdrawal of stimulus measures introduced in the aftermath of the Global Financial Crisis.”
The report said the decision by governments to stop stimulus spending was misguided.
“There is an unhealthy preoccupation by politicians on both sides of parliament with returning the budget to surplus,” the centre’s executive director Michael O’Neil said.
“These views often demonstrate a poor understanding of the relationship between government deficits, debt and monetary policy, and there is currently a risk of government getting the timing wrong in respect of fiscal policy.”
In its outlook, the report sees little movement in economic trends.
“As a consequence of the large contraction in state final demand, lack of growth in exports and slowdown in the national economy, SACES expects that the South Australian economy will contract in the current financial year.
“Our current forecast is for GSP to fall by 0.75 per cent in 2012/13.
“Prospects for the coming financial year are somewhat brighter. The recent improvement in labour market conditions, signs of imminent recovery in residential building and generally favourable expectations for non-manufacturing business investment point to a resumption in economic growth in the short term.
“The recent depreciation of the exchange rate combined with earlier interest rate cuts will also provide a much more supportive base for economic growth going forward. Our current expectation is that Gross State Product will rise by approximately 1 per cent in 2013/14.”
Unemployment, meanwhile remains an area of concern for the State with recent monthly figures showing a slow uptick towards 6.0 per cent, the May figure at 5.9 per cent.
ABS data released yesterday show that the number of job vacancies in South Australia has declined by 42 per cent in the last 12 months, the worst decline of all states.
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