The outlook for the South Australian economy is highly uncertain, with rising unemployment, low growth and the short-term impact of the Holden closure, a major economic report says.
The SA Centre for Economic Studies’ biannual Economic Briefing, however, sees some signs of recovery in house construction and private investment.
“Some cyclical recovery can be expected in 2013/14 given the weak economic conditions that prevailed in 2012/13,” the report says.
“Meanwhile, continued global recovery and historically low interest rates will support stronger growth.
“On the other hand public sector spending is likely to moderate in the absence of any major policy shifts, and economic activity nationally remains subdued.”
Reflecting on the State’s economic performance in the previous financial year, the SACES report notes economic growth was at levels last experienced in the recession of the early 1990s.
“Given the weakness in international conditions and subdued growth in the national economy it is not surprising that South Australia’s economic performance was weak in 2012/13.
“Gross State Product (GSP) rose by 1.3 per cent for the year.
“While the GSP result was much better than we anticipated in our previous Briefing Report, it remains poor by historical standards, being the second smallest rise in GSP since the early 1990s recession.”
The new financial year showed positive early signs; jobs, however, remain a point of concern.
“More timely data from the quarterly National Accounts indicate that demand growth picked up in the first half of 2013 but the recovery may have faltered in the September quarter.
“Real State Final Demand (SFD) in seasonally adjusted terms fell by 0.5 per cent in the September quarter 2013.
“Growth in trend terms was positive, which combined with previous upward revisions to SFD growth suggest that the latest estimates need to be interpreted with caution.
“However, the recent seasonally adjusted result is consistent with a deterioration in labour market conditions – employment has fallen since May 2013 such that total employment in October 2013 was down 1.4 per cent from a year earlier – which together point to ongoing weakness in the state’s performance.”
The report pointed to signs that private sector demand has been picking up.
“Growth in household consumption expenditure has slowly accelerated through 2013 while dwelling investment has grown at a steady clip.
“Business investment may have turned a corner, rising by 1.2 per cent in the September quarter after contracting in the previous 5 quarters.
“Despite the recent fall in public sector capital spending, large scale public projects continue to support a robust level of engineering construction activity, helping to offset subdued levels of building activity.
“The latter appear to have passed a trough, with residential and non-residential building activity resuming moderate growth in 2013.
“The short-term outlook for residential building is on balance positive, with approvals rising solidly over the past six months, although non-residential building approvals have declined.”
The SACES briefing reports that South Australian overseas export volumes were steady in 2012/13, but export values were moderately lower due to unfavourable terms of trade effects.
“More timely data indicates that goods exports have picked up over recent quarters with a surge in exports to China due to additional iron ore production coming on line.”
There was one major cloud sitting above these positive signs, the report noted.
The closure of Holden’s car assembly plant was the “uncertainty” factor.
“Close of local production will have a significant negative impact on the South Australian economy. The most methodologically sound estimates, based on a scenario of complete closure of the Australian motor vehicle industry over the period 2017 to 2018, indicate that total job losses in South Australia will reach 8,800 in 2018.
“How the actual economic impacts of GM Holden’s closure will compare to those associated with the hypothetical scenario outlined above is unknown as are the exact timing of the impacts.
“At present we don’t know how GM Holden will phase out its operations beyond ceasing by the end of 2017.
“To the extent that the wind down is concentrated towards the end of 2017 then the economic impact over the next couple years may be quite muted.
“However, the announcement may have a negative impact in the short term to the extent that it decreases consumer and business confidence and creates uncertainty for those directly impacted by the decision.”
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