The NSW and VIC future boom

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Why must we always be on the verge of another boom? Because it makes good reading, I suppose. Deloitte has seized the headlines today with its forecast of a new China boom for Victoria and New South Wales. From the SMH:

Victoria’s economic strengths will sweep it ahead in the next 20 years, positioning it to capture the demand from Asia’s middle class for everything from better food to better education and better returns on its savings, a report by consultancy firm Deloitte forecasts.

The report, Positioning Australia for Prosperity? Catching the Next Wave, predicts that six ”super-sectors” will grow faster than the rest of the global economy. It says Australia generally, and Victoria specifically, has unique advantages in almost all of them.

”The next wave of Australia’s prosperity will come from sectors that are much more evenly distributed across Australia than the minerals are,” co-author Chris Richardson told Fairfax Media. ”Asia’s demands will widen out from iron ore and coal to a bunch of other things.

”The times will suit Victoria. It is superbly positioned to capitalise on Australia’s next boom.”

The Deloitte report forecasts that around the world, six sectors will outpace other industries in growth over the next 20 years: gas, tourism, agriculture, health, international education and wealth management.

Much the same story ran for NSW. Let’s test the hypothesis. Gas is a drain on NSW’s growth but is better for VIC . No doubt we’ll see more CSG investment for both, however, none of it is exported so we can cross those off the list as growth drivers. Health is local only and is going to be a massive drain on all economies.

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The other four sectors have done the following in the last six years:

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Agribusiness is doing a creditable job, growing 24% in the past six years. Not stellar but ahead of GDP. Interestingly, if you split the agribusiness categories up you get spectacular growth in unprocessed bulk goods and no growth whatsoever in processed. Like the mining boom, the dining boom is all about dirt. This is the best story for NSW and Victoria, especially the wheat belts which have been leading the growth charge.

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On the other hand, professional services have gone backwards. I do expect tourism and education to pick up as the dollar falls but that’s about it. If professional services like wealth management haven’t cracked China by now I don’t see why they’re suddenly going to do so. Aside from anything else, they are typically an investment play, not export play.

In short, there is some good news in the Deloitte report for NSW and VIC but it’s mostly over-hyped on the available data and these two states will remain the great parasites of the Australian economy, taking the trade surpluses in QLD and especially WA and spending them on…whatever they damn well choose!

About the author
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.