Saturday, May 9, 2015
It's remarkable how the media can get so excited about some "problem" but then never mention it again.
The two-speed economy was caused by the first two stages of the resources boom, of course, with the high commodity prices and mining investment boom causing the resource-rich states to grow much faster than the other states. The others were held back partly by the boom-caused high dollar making life much harder for trade-exposed industries such as manufacturing and tourism.
According to an article by Sam Nicholls and Tom Rosewall in the latest Reserve Bank Bulletin, Western Australia's real gross state product grew at an average rate of almost 5 per cent a year after 2003-04, and Queensland's grew at 3.5 per cent, compared with 2.5 per cent or less in the other states.
But with commodity prices coming down (and state governments' mineral royalties falling) and construction projects winding up, the mining states' economies are now growing more slowly.
The boom is now in its increased production phase, but this is much less labour-intensive than building new mines and natural gas facilities, meaning less money stays in the state economy rather than going to foreign owners.
Meanwhile on the other side of the fence, the Reserve Bank's bargain-basement level of interest rates has helped consumption spending and home building to grow a bit more strongly in the other states, particularly NSW and Victoria.
With their tax receipts boosted by much higher conveyancing duty from their housing booms, the NSW and Victorian governments won't keep such a tight rein on budget spending.
The dollar has now fallen a long way (though its decline has been inhibited by the "quantitative easing" – money creation – in most of the major advanced economies) and this is starting to revive manufacturing and tourism.
Differences in each state's industrial composition, as well as differences in their rates of population growth, mean the states never grow in lock-step. Barring commodity booms, the nationwide growth rate is rarely far from the growth rates in NSW and Victoria, simply because these two states constitute more than half of national gross domestic product.
We're returning to that more usual state. Nicholls and Rosewall examine the "standard deviation" in GSP growth rates as a summary measure of the degree of variation in growth across the states. They find it has declined recently to be only a little above its long-run average.
Another way to compare the states' economic performance is to look at differences in their rates of employment growth and levels of unemployment, though you have to remember to allow for differing rates of population growth.
Doing this shows that "the variation in state unemployment rates has declined recently, to be well below its average level since 2000", the authors say.
Of course, although the states may now be growing at more similar rates, a decade of disparate growth can't help having a big effect on each state's share of the total Australian economy.
Are you sitting down? Over the 10 years to 2013-14, WA's share has increased from 11 per cent to 17 per cent. Amazing. And get this: WA now has by far the widest gap between its share of the economy and its share of the nation's population, just 11 per cent.
Queensland's economic share has increased by 1 percentage point to 19 per cent. (Mining accounts for a much smaller share of Queensland's economy than of WA's, and the Sunshine State is also more dependent on tourism, which was hard hit by the high dollar.)
The Northern Territory also benefited greatly from the mining boom, with its share of the national economy increasing by about a quarter. In absolute terms, however, it remains tiny.
But if the mining states' share has grown, the other states' shares must have shrunk. In round figures, NSW's share is down 4 points to 31 per cent and Victoria's is down 2 points to 22 per cent. South Australia's and Tasmania's shares are down a combined 1 point to 6 per cent and 2 per cent.
Now let's look at differences in the states' industrial structure. Although most industries' share of each state's economy is similar, there are some big differences, particularly in primary industry.
Mining accounts for a remarkable 30 per cent of WA's economy and 9 per cent of Queensland's, compared with about 2 per cent in the other states.
Agriculture accounts for 8 per cent of Tasmania's economy and 5 per cent of SA's, compared with a national average of 2 per cent.
Victorians see their state as heavily dependent on manufacturing but in truth it accounts for 7 per cent of their economy, the same as for NSW and not far from the national average of 6 per cent.
With NSW fancying itself as the nation's financial capital, it shouldn't surprise that "business services" – financial and insurance services; professional, scientific and technical services; media and telecommunications – make up 30 per cent of its economy.
What may surprise manufacturing-mesmerised Victorians is that they're not far behind at 27 per cent. This compares with shares ranging from 19 per cent down to 14 per cent in the other states.
A last startling statistic. Because our exports are dominated by minerals and energy, and because WA has such a large share of the nation's mining industry, the authors estimate that with just 17 per cent of the economy, WA supplies a stunning 43 per cent of our exports.
No wonder the Sandgropers like to imagine the rest of us are bludging off them.
But it's a mercantilist fallacy that nations make their living by selling things to other nations (and importing as little as possible). Selling goods and services to other Aussies is no less virtuous.