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Tuesday, December 05, 2017

Sydney accounts for half Australia's growth

Sydney has become Australia's economic powerhouse, accounting for almost half of Australia's economic growth.

The extraordinary figure of 41.2 per cent is the highest since Victoria led the nation into recession in the early 1990s.

New calculations show that Sydney and Melbourne combined accounted for more than two-thirds of Australia's economic growth during 2016-17, a concentration rare on a global scale.

The capital city GDP estimates prepared by Terry Rawnsley of SGS Economics and Planning show Sydney's economy grew 3.3 per cent during 2016-17, easily surpassing Melbourne's 2.8 per cent.

The economy of regional NSW grew 1.5 per cent; the economy of regional Victoria grew 5.8 per cent.

A rough measure of living standards, GDP per capita grew 1 per cent in Sydney while slipping 0.1 per cent in Melbourne.

GDP per capita shrank 0.6 per cent in Brisbane and 4.7 per cent in Perth.

Mr Rawnsley said economic activity was gravitating to Sydney and Melbourne, even though Melbourne's living standards were slipping.

"It's getting economic refugees from Perth and Brisbane, whose living standards are slipping faster," he said. "Melbourne is more affordable than Sydney. If you want a big city with a vibrant economy but you don't want to pay Sydney prices, you go to Melbourne."

Sydney is Australia's hottest capital city economy. SGS suggests that to rein in Sydney's economy the Reserve Bank would have to push up its cash rate from 1.5 per cent to 3.5 per cent. To rein in Melbourne's it would have to push it 2.25 per cent. In Brisbane, Perth and Adelaide, the cash rate would have to be pushed down to 0.25 per cent.

 

 

Sydney and Melbourne were set to become even more dominant.

"The knowledge-intensive industries in which we are globally competitive are best located in big dense cities with good access to highly skilled labour," Mr Rawnsley said.

"Australia is unique in having a population of 25 million people and two cities of roughly 5 million each. Those cities are likely to become ever more important at the expense of the other capitals and regional centres like Bendigo and Ballarat or Orange and Wollongong."

Financial services is by far Sydney's most important industry, accounting for 15 per cent of its economy, up from, 11 per cent in 1997. The next most important is professional services at almost 10 per cent, up from 6 per cent in 1997. Construction accounted for 6 per cent of Sydney's economy in 2016-17, and manufacturing 5 per cent, putting Sydney within spitting distance of Australia's traditional manufacturing centre Melbourne, where it accounted for 5 per cent.

The official GDP figures, to be released on Wednesday, don't break down GDP by state. The Bureau of Statistics does this once a year, in November. Shortly afterwards Mr Rawnsley estimates capital city and rest-of-state GDP. Before joining SGS he calculated statewide and national GDP for the Bureau.

In The Age and Sydney Morning Herald

 

Melbourne living standards slip, as manufacturing slides to record low

Melbourne is no longer Australia's manufacturing capital.

New calculations of so-called capital city GDP show Melbourne's economy growing 2.8 per cent in the past financial year, well below Sydney's 3.3 per cent.

Had manufacturing not collapsed in the wake of the closure of the Ford car plant in 2016 and the closure of Holden in October this year, Melbourne's GDP would have been 0.6 points higher, eclipsing Sydney's at 3.4 per cent.

The capital city and regional GDP estimates are prepared each year by urban economist Terry Rawnsley of SGS Economics and Planning, who used to produce the national and state estimates for the Bureau of Statistics.

Manufacturing now accounts for only 6 per cent of Melbourne's economy, down from 16 per cent in 1997, just pipping Sydney's 5 per cent.

Victorian Treasurer Tim Pallas said that statewide, manufacturing remained Victoria's third biggest employer providing 278,000 jobs across 13,000 businesses.

"More than 266,000 jobs have been created since we were elected in 2014, with around 60,000 in regional Victoria," he said. "That's more than anywhere else in the nation for that period."

Financial services is now far and away Melbourne's most important industry, accounting for 12 per cent of economic output, followed by professional services, accounting for 9 per cent. The next most important industries are healthcare and construction, each worth 7 per cent.

The biggest contributors to Melbourne's economic growth during 2016-17 were the professional, scientific and technical industries, construction and wholesale trade, and healthcare and social assistance.

Adjusted for Melbourne's extraordinarily high population growth, GDP per capita fell in 2016-17, slipping 0.1 per cent. GDP per capita is a rough measure of living standards. It has fallen in six of the past 10 years. Brisbane, Perth and regional Western Australia were the only other parts of the country in which GDP per capita went backwards.

 

"Melbourne is in transition," Mr Rawnsley said. "Car plants have been closing while professional services and healthcare are growing. The good news is that manufacturing is levelling out. Things should improve from here on."

Asked why Australians should be flocking to Melbourne when living standards were falling, Mr Rawnsley said they were falling faster in Brisbane and Perth.

"They are economic refugees, and Melbourne is a lot more affordable than Sydney," he said. "If you want a big city with a vibrant economy, but you don't want to pay Sydney prices, you come here."

"People are coming for the lifestyle and jobs, even though the income they generate is failing to match population growth."

Melbourne's economy is Australia's second-hottest after Sydney. SGS suggests that to rein in Sydney's economy the Reserve Bank would have to push up the cash rate from 1.5 per cent to 3.5 per cent. To rein in Melbourne's it would need to push it 2.25 per cent. In Brisbane, Perth and Adelaide, the cash rate would have to be pushed down to 0.25 per cent.

Regional Victoria had a bumper year, recording economic growth of 5.8 per cent. A strong wheat crop and good year for other products including cheese boosted agricultural production almost 20 per cent. Manufacturing climbed on the back of related work at Shepparton canneries.

Combined, Australia's two biggest cities now account for 42 per cent of Australia's economic output, and a near-record two thirds of Australia's economic growth.

Mr Rawnsley said Sydney and Melbourne were likely to become even more dominant.

"The knowledge-intensive industries in which we are globally competitive are best located in big dense cities with good access to highly skilled labour," he said.

"Australia is unique in having a population of 25 million people and two cities of roughly 5 million each. Those cities are likely to become ever more important at the expense of the other capitals and regional centres like Bendigo and Ballarat."

In The Age and Sydney Morning Herald