Small projects could be the saviour for State economy

Friday, 30 June 2017

University of Adelaide economists are predicting minimal jobs growth in South Australia over the next two years, as the full impact of the Holden closure is felt and with few major projects on the immediate horizon.

In their first Economic Briefing Report for 2017, the University's South Australian Centre for Economic Studies (SACES) predicts jobs to grow by only 0.75% in the 2017/18 financial year, and again by just 0.75% in 2018/19, sufficient to keep up with population growth but not strong enough to make any impact on the unemployment rate.

"While business investment in South Australia has improved over the past year, outcomes vary across asset categories and industries," says Associate Professor Michael O'Neil, Executive Director of SACES.

"Investment in machinery and equipment, intellectual property products such as research and development and mineral exploration, and agricultural resources has risen, while investment has fallen for non-dwelling buildings and engineering construction.

"There are signs that economic conditions in South Australia’s main trading partners are improving, and spending in South Australia has accelerated. But job losses at GM-Holden and associated suppliers are holding back statewide employment. In addition, the timing of transitions between large defence contracts is also unfavourable for the near-term employment outlook. For these reasons we expect weaker economic growth next year."

The report says employment conditions in South Australia are worse than might be hoped, despite modest growth in household spending and public sector investment.

"South Australia's employment growth has come to a halt in 2017, and the unemployment rate has risen. Unfortunately, forward indicators don't hold out much prospect of improvement through the rest of 2017," Associate Professor O'Neil says.

"So while there are some encouraging developments in the State's economy, there are not enough of them to overturn this rather downbeat view."

Associate Professor O'Neil says the State's economy has been further undermined by a surge in imports. Population growth has also now fallen to its lowest levels in more than a decade, which takes away growth momentum.

"In this context, it's important that government policy is attuned to take advantage of the innate advantages that South Australia has. These include an educated and capable workforce, valuable natural resources in the form of agricultural, fishery and extractable resources, a relatively clean environment, and a high quality of living.

"The State’s traditional heavy manufacturing industries are much depleted and our overseas exports now come mainly from agriculture, resources and education. Our exports to other States are driven especially by agriculture, tourism, parts of manufacturing and our interaction with supply chains for the services sector.

"A return to stronger economic growth in South Australia is unlikely to come from one or two large projects but instead will need many successes at the smaller scale."

Associate Professor O'Neil says: "The businesses that can deliver this growth are in an open economy and now have a relatively low reliance on protective trade policies. This means they will need to compete directly with overseas suppliers for markets and for investment.

"In that competition, the South Australian cost structure is an important influence on the decisions that ultimately are taken, and policy makers need to avoid undue impositions on those costs," he says.

"A robust level of agricultural exports, including sustained increases in exports of meat and vegetables over recent years, demonstrates South Australia’s ability to compete globally. Renewed growth in wine exports after a prolonged period of stagnation is a further positive development in this respect."

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


Contact Details

Associate Professor Michael O'Neil
Executive Director, SA Centre for Economic Studies
The University of Adelaide
Business: +61 8 8313 4545
Mobile: +61 (0)408 812 032

Mr David Ellis
Deputy Director, Media and Corporate Relations
External Relations
The University of Adelaide
Business: +61 8 8313 5414
Mobile: +61 (0)421 612 762