South Australia’s economy is suffering from a lack of consumer confidence, a leading economic think tank says.
While the nation’s economy is “moseying along” in a safe but sure transition from the mining boom, South Australia is still stuck in the slow lane, the Deloitte Access Economics Quarterly Business Outlook says.
The confidence drop is a result of the loss of car manufacturing and ongoing doubts about the next submarine build, it says.
“The job market has been less than satisfactory,” Deloitte’s economists note.
“Worryingly, job vacancies continue to fall, and they are doing so at a relatively rapid rate, consistent with the challenging conditions of the moment.
“And that has held back cash going through retailers’ tills.
“Whereas the rest of Australia is happily wearing its party hat when visiting retail establishments, 2014 to date has shown evidence of increasing conservatism among South Australian shoppers.
“That has left the growth in retail sales in this State at less than half the national equivalent.”
Deloitte sees the falling Australian dollar as providing some prospect for relief.
Nationally, the major problem of making a transition from the mining boom appears on track.
“Australia’s transition through the mining boom is going well – mining-related construction work may be fading, but resource exports are climbing fast, while low interest rates have coaxed some better news for retailers as well
“That relatively smooth baton pass between growth drivers has kept overall Australian economic growth close to trend.
“Yet although production is growing at trend rates, our incomes are limping. A fast fall in commodity prices has crimped national income.
“And, in turn, that pressure on incomes is likely to worsen negatives (such as the fall in mining-related construction) and to sap some of the strength from positives (weak wage growth will keep retail on a tight leash, while low commodity prices may trim
the top off rising resource export volumes).
“That leaves us projecting growth to mosey along at less than trend until late 2015.”
South Australia: Deloitte’s full analysis:
It never rains but it pours. On the one hand South Australia knows that its car manufacturing sector is on borrowed time, and that those employed in operations making car parts and components are therefore also at risk. And now on the other hand this State also knows that compellingly bad Budget numbers have the Feds looking askance at the option of building submarines domestically.
To be clear, opting for Japanese subs doesn’t mean that little or no work would occur in Adelaide. In fact, there’d still be billions of dollars of local value-add as we stickytape American weapon systems into Japanese subs. Even so, this looks like being a substantially smaller spend than had more fully blown options been preferred.
To be equally clear, the “buy the submarines from Japan” option isn’t yet announced. But the jungle drums certainly seem to suggest that Canberra will take the Japanese option.
This publication is written by ageing and grumpy economic rationalists, so we therefore applaud what now appears to be the likely decision – doing anything else would have been to smoke hundred dollar notes at the expense of Australian taxpayers. But equally it means that car and related manufacturing has now been joined by a smaller spend around submarines to add to the known challenges for South Australia’s economy in the next few years.
Other things equal, that makes the times ahead even tougher than we’d already forecast.
And that’s just the known negatives down the track. The here and now isn’t anything to cheer about either. Although the State’s housing construction sector is gearing up for some better news, that isn’t true for the State as a whole. The job market has been less than satisfactory. Worryingly, job vacancies continue to fall, and they are doing so at a relatively rapid rate, consistent with the challenging conditions of the moment.
And that has held back cash going through retailers’ tills. Whereas the rest of Australia is happily wearing its party hat when visiting retail establishments, 2014 to date has shown evidence of increasing conservatism among South Australian shoppers. That has left the growth in retail sales in this State at less than half the national equivalent.
On the other hand, the news that the submarines may be turning Japanese – we really think so – became public at about the same time as the $A took another tumble. The news is less bad than the punters and the pundits think. Rather, the future looks like the past, with continuing growth, but at rates less than the national average.
That points to a steady further loss of ‘market share’ within Australia.
Although home building approvals rose to a healthier level in the last two years, they have budged stubbornly little through 2014 despite the increasing generosity of the mortgage interest rates on offer, and despite a steady downtrend in rental accommodation vacancy rates over the same period.
At least there’s some good news on demographic destiny.
Although the State’s rate of population growth is still not much better than half its national equivalent, for the nation as a whole population growth is continuing to lose steam, whereas in South Australia population growth has shrugged off the dire headlines that have dogged the State to continue to edge upwards in recent times. Even so, the extent to which housing construction joins the national recovery isn’t clear. The news looks like being reasonable rather than robust.
Nowhere was the pipedream of the potential for engineering construction led grandeur as devoid from reality than in South Australia. Opportunity was rampant, and our Investment Monitor database of potential projects was scarred by the skeletons of planned resource projects past.
Adelaide never became the new Perth with resource-related activity never hitting its straps. And in another step sideways for the sector, the proponents of the $4.5 billion Central Eyre Iron Project have pushed back the expected commencement date of the project into 2016. That’s not to say engineering construction is weak.
In relative terms SA’s engineering sector remains on the stronger end of the spectrum, with a broad range of sectors supporting the current level of activity. These include a $514 million upgrade of the Port Pirie smelter, the second stage development at the Snowtown wind farm, and a $35 million upgrade of the equine precinct on Brinkley road, where a private investor has recently entered the mix. Meanwhile, construction recently wrapped up on the $443 million Goodwood and Torrens rail junctions upgrade, as well as on the $26 million Bolivar Wastewater treatment plant.
On the other hand, a weak job market is hurting prospects in the State’s commercial construction sector.
Office vacancy rates in Adelaide remain among the highest in the country, while ongoing weakness in retail sector investment is being hit from several sides as disposable income growth lags the national average and online business models challenge the correlation between consumer spending and the demand on retail infrastructure. And with the approaching completion dates of the Rundle Mall development and the new Costco store at Kilburn, levels of retail sector investment in the State may get worse before they get better.
The big money is in the health sector, with the Lyell McEwin hospital redevelopment, the stage 2 redevelopment of the Queen Elizabeth hospital, and the new Royal Adelaide hospital all underway.
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