Theresa Worrell: How’s the ACT Economy?

Australia’s economic fortunes have improved according to the ANZ Bank’s most recent Stateometer -it’s quarterly assessment of the economic state of our States.

As housing construction keeps economies humming in the south east, resources construction in the west and north comes close to bottoming, and labour markets and trade improve nationwide, the ANZ Stateometer paints a picture of an economy moving closer to its trend rate in the June quarter.

Today we look at their finding for the Australian Capital Territory’s economy which is now running just below its trend level and with reduced momentum.

The labour market pulled down growth in the quarter, but the household sector, housing and trade all contributed positively.

Figure 1. ANZ Stateometer index – ACT

Figure 1. Anz Stateometer Index Act

GOVERNMENT DEPENDENT

The ACT’s public sector-centric economy benefitted from solid jobs growth in 2016 as Commonwealth spending recovered from the 2014 and 2015 cut backs by the Abbott Government.

Meanwhile, dwelling construction grew – as it did in surrounding states – leading the ACT economy to grow very strongly in 2016. But momentum in the economy and jobs growth has now slowed.

Figure 2. Composition of ACT economy, 2015-16

A LIGHT (RAIL) AT THE END OF THE TUNNEL

There is some ongoing activity in the state from a major light-rail project, the AUD707m first stage of which is currently under construction.

Business investment, however, continues to be flat. Trade remains a very small part of the ACT economy.

However, a push to diversify and increase its export earnings (including by incorporating international air carriers in Canberra airport) has lifted trade’s contribution to the ACT Stateometer index in 2017.

Education services are the ACT’s largest export earner.

Figure 3. Government consumption growth

LABOUR MARKET REMAINS ABOVE AVERAGE

Although the ACT economy, which represents just 2.2% of the national economy has recorded consistently better wage and unemployment outcomes than the national average, its recent labour market performance has slipped.

The unemployment rate at 4.8% is below the national average of 5.6%, but employment growth of 0.6% in the year to July makes it one of the weakest.

Figure 4. Wages growth by sector

HOUSING – NOT DONE YET

The housing construction sector’s contribution to growth has been substantial as in the other major eastern states. house property

The construction sector also expects construction activity to remain high, which is supported by work already in the pipeline.

But as with its neighbouring states, we do not expect further growth in housing construction over the coming months.

Perhaps reflecting the strong growth in dwelling investment over recent years, and a strong wealth effect from double digit house price growth, ACT consumer spending appears to be running solidly.

Retail sales grew strongly in the year to June, at 5.3%.