Nsw To Make Less Of The Pie

Sydney Morning Herald

Monday July 21, 2008

Jacob Saulwick

AUSTRALIA'S two-speed economy will only deepen in the coming years, dragging the NSW share of the national economy and its share of total population down to record lows.

Mining and farming will be the only sectors to expand quicker in the year to July 2009 than they did in the previous year, the latest business outlook by Access Economics predicts. Finance, property, manufacturing and retailing will grow more slowly, with the finance sector confronting the biggest headwinds.

The diverging growth rates will deepen the split between areas allied to the mining industry, and the rest of the economy.

"Basically, if you draw a line from Brisbane to Busselton [in Western Australia], everyone north of the line will be doing OK, everyone south of it less so," the head of the forecaster's macroeconomic group, Chris Richardson, said.

NSW, where mining makes up only 2 per cent of the state economy, is expected to see its share of total economic growth slump to just over 31 per cent by 2010, from more than 35 per cent at the start of the decade.

As a growing number of migrants move to the mining states of Queensland and Western Australia, the share of the national population living in NSW has slumped below one third - probably for the first time, Mr Richardson said. Access Economics expects the NSW share of national population to drop to 32 per cent by 2012.

A big reason for the weaker performance of NSW is the expected contraction in the finance sector. Last year the state economy accelerated after years of sclerotic growth, mostly driven by finance, which expanded at its most rapid pace since the financial deregulation in the 1980s spurred rapid growth.

"2007 marked the culmination of a number of years of rapid growth in the finance sector in Australia as easy money fuelled good gains in the industry," Access Economics' quarterly report, released today, says.

"Yet pretty much all the elements of that growth equation for finance are now in rapid reverse: the global credit crunch remains very big and very ugly, and Australians' reliance on debt means that we are among those paying the price for that."

The decline of finance will be particularly hard on Sydney, home to almost half the country's finance and insurance businesses. The sector makes up a tenth of the NSW economy. Property and business services - also reeling from climbing interest rates and falling demand for housing and construction - make up a seventh.

But Mr Richardson said the national economy should hold up, mostly because of the windfall enjoyed by coal and iron ore producers this year. Higher prices for coal and iron ore alone are expected to provide as large a boost to national income this year as the entire expected increase in gross domestic product.

© 2008 Sydney Morning Herald

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