Despite having some weak regional economies, particularly in the Townsville and Queensland outback regions, the State economy overall recorded reasonably healthy growth in State Final Demand in the June quarter of 0.7 percent in seasonally adjusted terms. This is very good news and is a testament to the robust economy of SEQ. Pete Faulkner has an excellent summary of the new data released by the ABS yesterday at his blog (GDP +0.5% q/q and +2.9% ann in line with expectations. QLD moves into positive territory):
The story from Queensland is one of a recovery. State Final Demand (which does not account for the state’s massive exports) rose 0.7% q/q which is the best performance in 3 years. Interestingly, given the talk about the slowdown in Private Investment, this sector was up 0.9% for the quarter with investment in machinery and equipment (which accounts for 23% of Private Fixed Capital) jumping 10.4% q/q. Public sector Fixed Capital also grew strongly up 6.8% q/q which helped the Public sector grow 1.9% q/q. The net result from this renewed strength is that State Final Demand was down just 1.2% for the year 2015-16 and up 0.4% y/y; this is the best result since the end of 2014 although it still falls a little short of the 2016-17 Budget forecast of a 1.0% decline.
Pete is right to highlight the increased private sector investment in machinery and equipment as a good sign, as it suggests new businesses are opening up or existing ones are expanding, or at least they feel confident enough to replace old equipment (see my chart below). Let us hope this translates into a boost in employment soon. Along with greater dwelling construction, greater investment in machinery and equipment offset the adverse impact on State Final Demand coming from the continuing decline in non-residential construction, which is largely associated with the mining downturn and the completion of the Gladstone LNG processing facilities.
While private sector investment and household consumption made solid contributions to the growth in State Final Demand in June, the majority of the growth was due to increases in Government expenditure (see chart below, noting the columns represent percentage point contributions to the growth in State Final Demand of 0.7% in June quarter; i.e. the columns add up to 0.7%). Given the Federal and State budgetary positions, the desirability of public expenditure increases may be questioned by some economists. That said, these expenditures are supporting demand at a challenging time for Queensland’s economy as it adjusts to the mining downturn.