Sluggish state economy requires boost in exports

Friday, 16 December 2016

University of Adelaide economists will today deliver their final Economic Briefing Report for 2016, with predictions for a continued sluggish outlook and ongoing high levels of unemployment in South Australia for 2017.

The report, compiled by the University's South Australian Centre for Economic Studies (SACES), caps off a year with a mix of economic negatives and positives for the state.

"One of the bright lights in the South Australian economy until recently has been international exports, which increased by 11% in 2015/16. This was well ahead of the national rise in exports of 6.7%," says Associate Professor Michael O'Neil, Executive Director of SACES.

"The export growth for South Australia has included even stronger growth in services (12%), such as personal travel, education and research and development services.

"Unfortunately more timely indicators suggest that export activity has fallen away through the middle part of the year, although we hope that prospective strong crop yields from the agriculture sector will provide a boost over the summer period. In the absence of such a rebound the state’s economic growth may be even more subdued in the current financial year."

South Australia’s real gross state product (GSP) – a measure of the total market value of goods and services produced in the state – has grown by 1.9%.

"We've seen continued solid growth in household and government consumption expenditure over the past year. Household spending has been supported by a modest improvement in employment, although there has been little growth in labour incomes," Associate Professor O'Neil says.

"As was the case nationally, business investment has fallen substantially in South Australia and undermined spending growth.

"The weakness in South Australia’s business investment is primarily a result of sharp falls in mining and manufacturing. However, it may also be partly related to a substantial fall in construction work on one of the state's most significant projects, the new Royal Adelaide Hospital, which is being delivered as a public-private partnership and therefore currently appears in the accounts as private sector investment."

Associate Professor O'Neil says that although the recent fall in business investment for South Australia is disappointing, it is part of an overall malaise affecting the world's advanced economies in general. "Given the rather slow economic conditions we're seeing internationally and nationally, it's not surprising that the South Australian economy has continued to post fairly subdued growth rates," he says.

The report states that while 2016 saw some improvements in employment, 2017 will offer a number of challenges.

"We expect that employment growth will be sufficient to keep pace with population growth, but it won't be sufficient to bring down the unemployment rate. The biggest major impact on jobs in South Australia will be the closure of Holden's production line in 2017. We're also likely to see an increasing prevalence of long-term unemployed and rises in underemployment to record levels," Associate Professor O'Neil says.

The full Economic Briefing Report will be delivered to leaders of the South Australian business community in Adelaide today.

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