Slowly but surely - Deloitte US...The value of international goods exports decreased by 0.1 per cent over the year to August compared to a 4.4 per cent decline nationally. As we know,

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Queensland Business OutlookSlowly but surelySeptember 2016

Contents

Economic snapshot 01

Economic outlook 02

Economic growth 03

Labour markets 03

International exports 04

Tourism 04

In focus: Queensland’s private sector investment 05

In focus: Queensland’s employment 08

Shaping future cities Queensland 11

1

Queensland Business Outlook | Economic snapshot

Notes: : Real, year-on-year; Seasonally adjusted figures; Employment to September 2016; State Final Demand to June 2016

Sources: ABS 5206.0, ABS 6202.0

Share of total State Final Demand

Up 1.9%Electricity, gas and other fuel up 7.6%Purchase of vehicles down 10.4%

Up 12.8%Up 0.4%State FinalDemand

EmploymentDown 0.3% to 2.35m

Businessinvestment

Housinginvestment

Household consumption

Government

Down 16.6%New (non-residential) buildings up 6.2%New engineering construction down 36.0%

Up 4.4%General government consumption expenditure up 4.0%Public gross fixed capital formation up 5.5%

New and used up 15.6%Alterations and additions up 9.0%

Economic snapshotJune quarter 2016

Slowly but surely, Queensland’s economy is returning to comfortable positive territory.

Compared to this time last year, Queensland’s State Final Demand edged up 0.4 per cent over the June quarter. This growth has been driven by increases across three of the four major components of Final Demand including household consumption, housing investment and public final demand.

Business investment is also showing signs of improvement and positivity in the long-term compared to last year. While much of the construction binge

associated with the mining boom has run its course, the export earnings from these investments are providing a much needed dividend to Queensland’s economy.

Combine the strengthening domestic economy with strong exports – we get a Gross State Product (GSP) result that tops the nation. Moreover, this favourable position is expected to stay over the course of the next few years.

So it’s good news for Queensland. Growth prospects are more secure and this has been recognised by Moody’s and S&P’s recently reaffirmed credit ratings for the state.

But we can’t forget that while this is not a bad backdrop, export-driven growth lacks a ‘feel good factor’ and there are some industries that will face economic challenges over the coming years. It is important to note that parts of regional Queensland aren’t feeling the same economic love that the South East corner is. For Queensland’s economy to be truly great, growth must be inclusive and diverse.

Queensland is well placed to achieve nation leading growth in the coming years – but the question still remains, will Queenslanders feel it?

2

Queensland Business Outlook | Economic outlook

Economic outlook

The baton of growth has been passed from investment to exports in Queensland.

Looking at exports, Queensland continues to perform better than the rest of nation. The value of international goods exports decreased by 0.1 per cent over the year to August compared to a 4.4 per cent decline nationally.

As we know, Queensland goods exports are being supported by the LNG industry ramping up export production. However – gas exports are getting through to market a little slower than expected meaning some of this will spill over into next financial year.

Even better, energy prices have had a good 2016 after an earlier phase left them battered and bruised. Coal and gas prices have made good gains in the year to date – however this will have to last in order to translate through to increased export incomes and royalties.

And then there’s ‘everything else’ Queensland has to offer. A tale of two Queenslands is also emerging - the divergence of the unemployment rate in Greater Brisbane compared to the rest of Queensland continues to widen. The lower Aussie dollar also continues to support tourism and international student numbers, while sustained low interest rates keep helping housing construction and retail spending.

3


Economic growthGross state productQueensland has a solid growth outlook of 3.8 per cent each year on average across the forecast period to 2019.

This rate of growth sees Queensland outpace the national average – outperforming the southern states of Victoria and New South Wales, and moving well ahead of the West.

State final demandState Final Demand has taken its time but the June quarter has seen it tick into positive territory.

Our forecasts predict that State Final Demand will remain positive with average real growth per year of 2.6 per cent across the forecast period to 2018-19 – this will also be nation leading growth.

Sources: ABS, Deloitte Access Economics

Gross state product Constant price, annual % change

Queensland Australia

Jun 2003

Jun2007

Jun2011

Jun2015

Jun2019

-1% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9%


State final demand Constant price, annual % change

-6% -4% -2% 0% 2% 4% 6% 8%

10% 12%


Jun2007

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International exportsQueensland’s international merchandise exports increased to be $47.4 billion over the year to August 2016. This figure remains supported by LNG as the industry moves to full production levels.

The latest forecasts show a positive position for Queensland’s international goods and service exports.

Strong demand from income growth in emerging Asian economies will support Queensland’s international exports in the coming years.


Jun2007

Jun2011

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Jun2019

Jun 2003

International exportsConstant price annual % change

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1 International Tourism snapshot – Year ending June 2016 –Tourism and Events Queensland

TourismIt is a case of happy holidaying in Queensland. International overnight visitor expenditure has continued its recent surge, growing by 10.6 per cent to a record high of almost $5.1 billion over the year to the June quarter. However, New South Wales and Victoria grew by approximately 18 per cent and this is a key challenge to growing Queensland’s share of the tourism pie.

This spike in international visitation is no aberration and is set to continue with forecasts showing growth in international arrivals of 6.8 per cent per year on average out to 2019.

China remains Queensland’s largest source market for visitors and visitor expenditure. Chinese tourists increased to 468,000 this quarter representing phenomenal growth of 30.5 per cent over the year1. Expenditure by Chinese visitors also grew by 25.6 per cent to total approximately $1 billion.


International tourist arrivalsAnnual % change

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Jun2007

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Labour marketsThe Queensland labour market is showing signs of recovery, but remains a contrasting story when we compare South East with regional Queensland.

The labour market in the South East corner is performing well overall – with strong employment growth in most centres. However many regional labour markets are feeling the effects of slower regional activity (post mining construction boom) as they look to diversify their economies and seek new growth opportunities.

The Business Outlook forecasts the State’s labour market to continue improving gradually with the unemployment rate predicted to hover around 6 per cent over the forecast period to 2018-19.



Unemployment rate %

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Machinery and Equipment Engineering construction Non-residential construction Business investment

Queensland Business Outlook |Queensland’s private sector investment

Business investmentBusiness investment has improved compared to this time last year. While engineering construction continues its subdued performance, machinery and equipment investment had a considerable bounce back in the most recent quarter.

Sources: ABS, Deloitte Access Economics – seasonally adjusted chain volume measures

Figure 1 – Business investment

In focusQueensland’s private sector investment

The improvement is supported by non-residential construction which has moved back into positive territory this quarter.

Looking ahead, we expect the levels of machinery and equipment investment

to also become positive by the end of the financial year. However, growth in engineering investment is expected to take more time to recover as the end of the binge from the mining construction boom runs its course.

6

Queensland Business Outlook | Queensland’s private sector investment

Housing investmentHousing investment remains strong in Queensland and housing construction continues to grow.

The latest figures indicate an upward trend in housing finance approvals, however the value of building approvals has edged down slightly in the first half of this year.

The growth in housing primarily comes from an increase in inner city apartments in the South East corner. There are risks around the oversupply of apartments and the vacancy rate has been on a slow upward trend, while rental growth continues to ease.

Going forward Queensland will need to watch for a gap between housing approvals and construction starts – a gap might indicate the beginning of a slow down. With a large number of apartments still under construction, its likely there will be a slowdown at some point.

-40.0%

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ual c

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New dwellings Alterations and additions Dwelling investment

Jun2006

Jun2008

Jun2010

Jun2012

Jun2014

Jun2016

Sources: ABS, Deloitte Access Economics, 10 years to June quarter 2016, seasonally adjusted, chain volume measures

Figure 2 – Housing investment

7

Queensland Business Outlook | Queensland’s private sector investment

Total private investmentGrowth in dwelling investment is not offsetting the decline in business investment. As a result, total private investment levels remain lower compared to previous peaks (Figure 3).

However, the level of total private investment has started to flatten out after falling consistently and it is on the mend.

The challenge for the Queensland economy going forward is to stimulate private investment in other sectors of

the economy outside of mining related engineering activity – smoothing the transition of the economy over the medium term and supporting jobs.

This is a challenge that falls at the feet of business and all levels of government.

Sources: ABS, Deloitte Access Economics, 10 Years to June quarter 2016, seasonally adjusted, chain volume measures

Figure 3 – Total private investment

$Mill

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Business Investment Dwelling investment

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8

Queensland Business Outlook | Queensland’s employment

In focusQueensland’s employment

A tale of two Queenslands The employment snapshot shows it is a ‘tale of two Queenslands’. Two years ago, the unemployment rate in Greater Brisbane and the rest of Queensland was almost the same. But over the last two years, this has diverged with Greater Brisbane currently having a significantly lower unemployment rate, with a rate of 5.7 per cent, leaving the rest of Queensland behind at 6.6 per cent (Figure 4).

Figure 4 – Unemployment rate

Source: Deloitte Access Economic calculations using ABS labour force data (12 month moving averages)

Notes: Rest of Queensland includes Cairns, Darling Downs-Maranoa, Fitzroy, Gold Coast, Mackay, Sunshine Coast, Toowoomba, Townsville and Wide Bay Statistical Area 4 (SA4) regions

Greater Brisbane (GB) Rest of Queensland (RoQ)

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6.0

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Greater Brisbane (GB) Rest of Queensland (RoQ)

Sep2006

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In the long-term, the employment prospects for South East Queenslanders look good thanks to the growth in service based industries. These are the industries that have been picking up the slack as others lose steam.

The importance of service industries will continue to consolidate due to digital disruption and changes in the global economy from the emergence of

Figure 5 – Employment growth rate

Source: Deloitte Access Economic calculations using ABS labour force data (12 month moving averages)

Notes: Rest of Queensland includes Cairns, Darling Downs-Maranoa, Fitzroy, Gold Coast, Mackay, Sunshine Coast, Toowoomba, Townsville and Wide Bay Statistical Area 4 (SA4) regions

Asian markets. These changes will drive the transition away from traditional activities in South East Queensland and see an increased focus on areas such as tourism, international education and the knowledge economy.

But where does this leave those outside the South East corner? The level of employment growth across the rest of Queensland is currently below

trend with an annual growth rate of 0.6 per cent over the year to September 2016. While southern regional areas including Toowoomba, Darling Downs and Wide Bay experienced employment growth significantly above their trend over the year, subdued employment conditions continue in Northern areas. It is well known that Townsville and the Outback regions are still feeling the effects of the economic transition.

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Greater Brisbane (GB) Rest of Queensland (RoQ) GB long term average RoQ long term average

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Latest employment outlookThe latest employment figures show Queensland‘s participation rate has fallen marginally below the national rate (Figure 6). That says that the slight downtrend in Queensland’s unemployment owes more to a lack of workers than it does to a surge in jobs. But this isn’t the full story.

Movement in employment shows strength in tourism related industries – thanks to the lower Aussie dollar – as well as other service based sectors that flourish in the South East corner.

As we all know, that mix means part time employment has been growing and full timers are still taking a back seat in the economic transition that is underway in Queensland.

But even if we allow for the fact that job growth accounts for mostly part timers and a drop in participation, the demand in the labour market continues to grow at a good pace. The unemployment rate has been edging down in Queensland from the highs in 2014 – even though the pace is slow.

There is also better news for Queensland’s millennials in the labour market. While youth unemployment remains relatively high – it hasn’t been under 10 per cent since 2009 – it has fallen from the peak of 14.3 per cent in April 2015 to sneak in to be 13.1 per cent in September 2016 (Figure 8). It has also improved from 13.9 per cent this time last year.

If you stand back and take a long hard look, you can see labour markets remain relatively healthy in Queensland. But to keep it this way, businesses and all levels of government need to consider what the roadmap is for higher participation rates and full time job creation to support a thriving future Queensland.


Figure 6 – Participation rate


Figure 7 – Unemployment rate


Figure 8 – Youth unemployment rate


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With a coordinated approach from business, community and all levels of government, there is a significant opportunity to further unlock prosperity for all Queenslanders.

As Queensland feels its way through the challenging transition from reliance on a resources and construction boom, all Queenslanders – especially those in regional Queensland – are grappling with how best to respond and plan for the future.

Inspired by a recent report by Deloitte Access Economics which outlined a blueprint for the economic transformation of Western Sydney, Deloitte has committed to lead a similar piece of co-designed thought leadership aimed at developing an overarching economic and broader policy narrative to help shape the future of Queensland.

Released at the Deloitte Queensland Gala in October, FutureNow, seeks to start a conversation about a vision for Queensland in 2027. This is the first step in the Shaping Future Cities Queensland initiative aimed at delivering a similar blueprint for Queensland in April 2017. Over the next six months Deloitte will work with business, communities, government and individuals to develop a roadmap for supporting a thriving future Queensland.

This article is available online from http://www2.deloitte.com/au/en/pages/future-of-cities/articles/liveable-diversified-connected-queensland.html

SHAPING FUTURE CITIES QUEENSLANDLiveable. Diversified. Connected.

A Steering Committee has been established to co-design the initiative and includes some of Queensland’s preeminent leaders from business, government and industry groups. In its initial meetings the group confirmed the need for and opportunities from a diverse economy, citing the state’s ‘lucky’ geography and climate, its world class resources, renowned universities, health facilities and agribusiness capacity as examples of its strengths.

The five key sectors that will be absolutely important to the state over the next 10 years are tourism, agribusiness, education, health & ageing and energy and resources. These sectors together have the capacity to deliver the economic prosperity that will attract the talent, and provide the vitality and opportunity across the cities and regions, that will make Queensland smart, agile, connected and confident in its future.

FutureNow article

Queensland Business Outlook | Shaping Future Cities

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Deloitte Access Economics is one of Australia’s leading economic consultancies.

If you would like to find out more about what Deloitte Access Economics can do for you, please visit our website www.deloitte.com/au/deloitte-access-economics.

Our team produces a number of highly regarded subscription publications aimed at giving clients a leading edge by providing in-depth economic analysis. A description of each publication is presented below.

Budget MonitorBudget monitor is the leading source of accurate and independent private sector projections of Federal budget trends in Australia. Budgets are analysed and projections made, including detailed estimates of future spending and revenue levels. Budget Monitor is prepared twice a year, prior to the Mid-Year Review and the Budget itself.

Business OutlookBusiness Outlook, released quarterly, is specifically designed for business analysts and strategic managers. Subscribers to the standard hard copy or electronic subscription are also eligible to purchase the Business Outlook on CD. The CD subscription contains forecasts out ten years, in quarterly, calendar and financial year formats as well as detailed history and charts, all in excel.

Employment ForecastsEmployment Forecasts, released quarterly, provides forecasts and commentary for each industry, plus white collar, blue collar and office demand index (where the latter draws on the ‘office intensity’ of each industry). There are three levels of data available: State, City and CBD. Employment Forecasts is particularly useful in the analysis of property market demand.

Investment MonitorThe quarterly Investment Monitor lists around 900 Australian investment projects, each valued from $20 million. Projects are divided by State, sector and status (ie, possible, under consideration, committed, under construction). The publication also contains commentary on industry trends, and company contact details for those companies involved in the projects.

Retail ForecastsRetail Forecasts, produced quarterly, provides detailed analysis of current retail sales and consumer spending. Included are National retail forecasts, retail sector forecasts, State retail forecasts, disposable income, non-income influences on retail spending and broader macro-economic influences. An annual subscription includes four quarterly reports plus Excel spreadsheets including 10 year forecasts and charts.

Queensland Business Outlook | Deloitte Access Economics

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Contributors

Mike Kissane CEO, Deloitte Access Economics Email: [email protected] Tel: +61 7 3308 7246

Mark Ingham Partner, Deloitte Access Economics Email: [email protected] Tel: 07 3308 7206

Claire Atkinson

Corey James

Jesse Sharp

Mathew Thomas

Luke Baxby Partner, Deloitte Access Economics Email: [email protected] Tel: +61 07 3308 7202

Natasha Doherty Partner, Deloitte Access Economics Email: [email protected] Tel: 07 3308 7225

Contacts

Queensland Business Outlook | Contacts

This publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively the “Deloitte Network”) is, by means of this publication, rendering professional advice or services.

Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this publication.

About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/au/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

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Documents

Slowly but surely - Deloitte US...The value of international goods exports decreased by 0.1 per cent over the year to August compared to a 4.4 per cent decline nationally. As we know,