Global and national slow down affecting SA economy

Wednesday, 3 July 2019

In their latest Economic Briefing Report University of Adelaide economists from the SA Centre for Economic Studies (SACES) are predicting that South Australia’s economic performance will continue to be affected by slowdowns round the country and overseas, as well as weakening employment growth and household spending.

“The global and national economies have lost momentum, which has had a negative impact on SA’s economy,” says Mr Steve Whetton, Deputy Director, South Australian Centre for Economic Studies, the University of Adelaide.

“Trade tensions and tariff increases have not helped. There has been weaker than expected economic activity in major economies over recent quarters and global economic growth will be slower this year than in 2018.

“SA’s growth was held back in 2018/19 by a poor farm season, but other aspects of the economy have been weak too. External demand for South Australian product is weak, and households’ incomes and finances are under stress. SA continues to have fairly subdued levels of business investment as a result of the weak appetite for investment across the advanced economies.

“Aggregate spending growth in SA has softened over the past year and will continue to be quite subdued in 2019/20 at just 1¼ per cent. Real state final demand (SFD) rose by just 1.7 per cent through the year to the March quarter 2019, down from 3.1 per cent over the previous year.
“On the plus side local labour market conditions have so far defied the economic slowdown, but employment growth is expected to slow during 2019/20 in response to the recent weakening in economic activity.”

Employment rose by 1.7 per cent through the year to May 2019, and aggregate hours worked rose more strongly, by 2.0 per cent. Strong employment trends led to a rise in the labour force participation rate, and as a result the unemployment rate has not fallen.

“Weak household spending is holding back the economy, both nationally and in South Australia. Household spending is being held back by sluggish growth in household incomes, high debt levels, and the recent weakening of the housing market” says Mr Whetton.

“The weak growth in South Australian final demand through the year can be attributed to slow growth in household spending which increased at less than half its typical rate, and a downturn in residential building (albeit from a reasonably strong level).

“Public sector spending grew quite strongly through the year and is currently the most significant driver of economic growth. Business investment in South Australia also showed moderate improvement although it is not at a particularly strong level by historical standards in terms of its share of total spending.

“Gross state product (GSP) is forecast to grow by 1½ per cent in 2019/20. A likely recovery in farm production to its normal level due to better seasonal conditions will boost exports for agricultural products, but this will be more than offset by the weakness in domestic demand. And with GSP growth weak – especially in the non-farm sector – we expect employment to grow by just ¾ per cent.”

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