ANZ has an interesting note out today looking at reasons for why NSW could lead national growth as the mining boom drags down our former high-flying states.
NSW RECOVERY MAY UNDERPIN THE TRANSITION FROM MINING BOOM
NSW demonstrates closer correlation with the US economy than the rest of Australia and the US economy is recovering. This is in contrast with our other major growth driver, China which is slowing, albeit from higher growth rates.
We see a more positive outlook for the financial and insurance services industry in Australia compared to recent years, which we believe is in part a direct consequence of the recovery in US economy and stronger demand for housing and related finance. Nearly 45% of Australia’s financial and insurances industry is based in NSW.
The benefits of a lower interest rate environment are filtering through the NSW economy, particularly to housing construction which is also gaining momentum from pent-up demand following several years of underinvestment.
The NSW Government’s recent windfall gains from leasing the ports of Botany and Kembla plus its plans to privatise or lease a number of other significant assets and sound budget management have facilitated a number of large-scale transport infrastructure projects. More are likely. Partly offsetting these will be lower capital spending by the recently heavily-capitalised electricity sector.
Falling commodity (especially coal) prices are likely to deter new major project developments, but with only 3% of its economy dependent on mining, NSW will not feel the effects as much as WA and Qld.
Advertisement
I’m inclined to agree with this analysis. Sydney has by far the best housing fundamentals in the country and is more advanced in its dwelling construction rebound. That is going to underpin better growth than other states though I would couch it more as relative out performance than absolute. Given the mining boom benefits are supposed to have permeated all of the nation, the bust will as well.
The correlation with the US is interesting and is, as the note says, based upon global trends in finance. Given I think US growth will remain sub-trend though slowly improving this is not necessarily a great comparison to make.
Having said that, it’s been a lousy decade and perhaps NSW time has come again:
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
