The State details of the December quarter national accounts released last Wednesday refute suggestions that Tasmania’s economy is in recession. Real ‘State final demand’ – which is the sum of spending by households, businesses and governments in Tasmania – increased by 1.1% (in the trend terms preferred by the Statistics Bureau) in the final three months of 2010. For the second successive quarter this measure of total spending grew faster in Tasmania than in any other part of the country except the ACT. Over the course of last year, real State final demand grew by 3.2% – in line with the average for the mainland. This represents a marked improvement from 2008-09, when Tasmanian State final demand contracted for three consecutive quarters.
On closer inspection, however, these figures don’t really dispel the dark clouds which have gathered over the near-term outlook for the Tasmanian economy in recent months. More than half the increase in State final demand over the second half last year was attributable to public sector spending. That’s unlikely to be sustained, because we know that Federal stimulus spending is being unwound, and the State Government is now also under pressure to rein in its spending. And most of the rest was the result of a rebound in business investment from a very low level in the first half of 2010, more than 40% below its peak before the onset of the global financial crisis. On the mainland, by contrast, business investment fell, at its greatest extent, by only 8% from its pre-crisis peak.
More generally, Tasmania is missing out on the key drivers of growth in the national economy – investment in, and exports from, large resources projects – while having a disproportionately large share of its economy exposed to the adverse consequences of some of the side-effects of the national ‘resources boom’, in particular, the elevated level of the Australian dollar.
Primary industry, for example, accounts for 7.2% of the total value of goods and services produced in Tasmania, compared with 2.2% of on the mainland; and many of Tasmania’s premium primary producers have been particularly harmed not only by the strength of the exchange rate but also by the deep recessions and subsequent very sluggish recoveries in traditional markets like Japan and Europe.
Likewise manufacturing, many parts of which are vulnerable not only to an appreciating exchange rate but also to competition from low-cost producers in emerging economies, represents 12.5% of the Tasmanian economy compared with 9.2% of the mainland’s. And with only a few exceptions, much of Tasmania’s manufacturing is too small in scale, and has had too little invested in it over the years, to remain competitive in the environment likely to prevail over the coming decade.
And retailing, which is now feeling the effects of what the Reserve Bank calls the ‘new frugalism’ on the part of Australian consumers, accounts for 5.5% of the Tasmanian economy, almost a full percentage point more than it does of the mainland’s.
That’s in large part why employment is still 1.0% below its pre-financial crisis peak in Tasmania, the only State or Territory which hasn’t yet made good the job losses incurred in the aftermath of the financial crisis, whereas on the mainland employment is 4.8% above its pre-crisis peak.
And it’s why the Tasmanian Treasury now expects the State’s economy to grow by only 1¼% per annum in the current financial year and in 2011-12, well below the Federal Treasury’s forecasts of growth in the national economy of 3¼% this financial year, and 3¾% next year.
In other words, Tasmania’s economy might not be going backwards. But it’s hardly ‘moving forward’, in Julia Gillard’s pre-election slogan, at a pace which inspires much hope for the near-term future.
This article by Saul Eslake was published, in edited form, in the Launceston Examiner, Tuesday 8th March 2011. Saul Eslake was raised and educated in Tasmania. He is a Program Director with the Melbourne-based Grattan Institute
First published on TT: 2011-03-08 12:32 PM