Thursday, June 05, 2008

Canberra: Where things go backwards

The ACT’s economy has stalled and gone backwards under the weight of high mortgage rates, high petrol prices and talk of Budget cutbacks. It is the only Australian economy to have done so.

The Australian National Accounts released yesterday show that spending and investment climbed strongly in every state and territory other than the ACT in the three months to March.

Only in the Territory did growth collapse, turning negative to minus 0.3 per cent in trend terms in the quarter and minus 1.6 per cent in seasonally adjusted terms.

Over the twelve months to March economic activity scarcely grew at all in the ACT with State Final Demand, which measures investment and spending climbing by a mere 0.1 per cent, compared to 3.7 per cent in NSW, 4.3 per cent in Victoria and 6.3 per cent in Queensland and Western Australia.

The Acting Chief Minister Katy Gallagher blamed the election of the Rudd Government for the collapse...

...saying that “a change in government nationally has resulted in a temporary slowdown in public spending which was confirmed by the efficiencies announced in the federal budget.”

“A city and national capital like Canberra will always feel a greater impact from these sort of measures than any other place,” the Acting Chief Minister said.

A director with Access Economics Chris Richardson said the ACT didn’t suffer as much from the Budget as it did from the talk about “pain” leading up to it.

“When all was said and done, more was said than was done in the Budget. It wasn’t tough. Now that’s good for the medium term outlook of the ACT economy but it couldn’t stop it moving into the slow lane while the talk was going on in the first three months of this year.”

Challenged as to whether he had brought on the ACT’s collapse in the economic activity by his talk of pain in the first three months of the year the Finance Minister Lindsay Tanner told the Canberra Times, “it would be nice if I was that influential, but I doubt if I can be blamed for any softening of the ACT economy”.

“It's important to distinguish between commentary of politicians and government ministers and the occasional embellishment that occurs when that is being conveyed to the general community.”

“But it is, I think, stretching it to suggest that there has been any significant impact from talk prior to the budget.”

Asked why he thought the ACT’s economic growth had turned negative he replied that “probably the most significant answer is that the ACT is the least mining and resource focused economy in Australia.”

Both household and government spending fell in the three months to March with private and government investment falling sharply.

Commercial construction shrunk 12 per cent.

“Commercial construction is still charging ahead fast and strong, just not as fast as it was,” said Chris Richardson of Access Economics.

“We did have a doubled up boom. It began in the public sector with big spending and spread to private sector. We have lost one of those two booms.”

Christopher Peters of the ACT & Region Chamber of Commerce said the next few months would be crunch time for business in the ACT.

“Spending in shops is completely flat. Business profitability has dropped for the first time in a decade, and costs like wage costs are increasing because of the skills shortage.”

“Since the Budget I am hearing two things: I am hearing some people say that the day after the Budget business started to pick up, but I am hearing quite a few people saying it hasn’t made any difference.”

“I reckon it’s crunch time.”

“If in three months our economy hasn’t recovered, then that’s going to be a strong signal for Canberra,” he said.

The Acting Chief Minister said she expected spending and investment in the ACT to rebound.

“But the ACT doesn't have the capacity to match the resource-rich states of Western Australia and Queensland which are clearly cashing in on the mining boom,” she said.

The Opposition leader Zed Seselja countered that the Stanhope government had had six years to diversify the ACT’s economy.

The Finance Minister Lindsay Tanner warned that he was about embark on phase two of his “razor gang” searching for deeper government spending cuts but that he had targets for what he would achieve.

“The areas we are delving into are highly complex and it is basically impossible to make a realistic assessment of what you may achieve until you're well into the process,” Mr Tanner said.

The National Accounts showed that Australia’s economy continued to grow at a modest pace of 0.6 per cent for the quarter and 3.6 per cent for the year at a time when the rest of world was slowing.

The OECD’s economic outlook released this morning predicts a further slowing in Australia’s economic growth to 2.7 per cent next year matched by a slowing in inflation to 3.1 per cent.