The current economic buzzword is “transition”.
Now is a good time see what is meant by all this transitioning. We are now five years since the start of the GFC and 10 years from the beginning of the mining boom.
In some regards this transition is not new. As I noted last week, the manufacturing sector has been declining in importance at an almost linear rate for 40 years. It does however feel like we’re at a pointy end of the change – where we really have to think about what our economy will look like in the next 10 to 20 years.
In the past 10 years, not surprisingly, Western Australia leads the pack. The Northern Territory, coming off a very small base is in second place, with the other mining state, Queensland, in third:
The four non-mining states all lag behind.
Interestingly, from 2003-08 Queensland grew faster than WA; in the past five years, however, WA has been the growth king. Queensland in that time, by virtue of numerous natural disasters and also the high dollar hurting its vital tourism sector, has seen its growth fall below average.
In the past 12 months, however, Queensland’s growth has been above that of the overall nation’s, but New South Wales, Victoria, South Australia and Tasmania remain below the curve.
A similar picture emerges with full-time employment growth across each state:
But the "why" requires looking a bit deeper.
If asked which industry has grown the most in the past 10 years, I’d wager most would think mining. In fact since 2003, the mining industry has grown only the fourth fastest in gross value added terms.
One of the reasons it has not grown the fastest is it was large to begin with. It is now the biggest industry in Australia, but in 2003 it was already the second biggest. Manufacturing in 2003 was the biggest industry, now it is fourth. Not surprisingly it is the only industry that actually shrank in the past 10 years.
But in 2003-08 the mining industry actually grew relatively slowly – it was the finance and insurance industry that was growing fastest. This isn’t surprising given that was the period of the big housing boom, when banks were making money hand over fist. The construction industry during this period – linked to work within both the mining and housing industries – was also growing fast. And even poor old manufacturing was at least growing – even if by only 6%.
Since the GFC, however, manufacturing output has shrunk by 6%, and the mining sector has well and truly boomed – increasing by 33%. In the past year, however, while the mining sector continued to boom, the construction sector barely grew at all.
This is a concern for those like the RBA who wish to see the transition from mining to non-mining construction. Other than the mining sector, the health care and social assistance sector remains strong due to our ageing population. Also in the past year the financial and insurance industry has begun to finally recover after the financially tough period of the GFC.
On a state by state level the contributions to growth for each state reveal clearly the importance of each industry across the country:
Overall, mining in the past 10 years has contributed the most to the growth of our national economy, and WA is far and away the state most dependent upon that industry. In NSW and Victoria the financial and insurance sector is the biggest assistance to their economies, with health care, construction and professional, technology and scientific services all in the mix.
In Queensland, despite notionally being a “mining state”, the construction industry has been the biggest contributor to its growth in the past 10 years – both before and after the GFC. However in the past year mining has taken over as the biggest contributor.
South Australia similarly has grown most on the back of construction, but its growth is much below that seen in Queensland. The sense of it being an old economy is supported by it being the state most dependent upon the agriculture sector.
Tasmania is the only state which has health care and social assistance as the biggest contributor to its economy’s growth. That is not a good sign. Our ageing population will always see this industry expanding, but having it as your strongest industry does not suggest a vibrant economy, more a sluggish one. And Tasmania’s lack of economic and employment growth rather displays this all too clearly.
And so where is the transition? Not to the manufacturing industry. In all states it has been a drag on growth in the past five years, and in many for the past 10.
Perhaps looking at NSW’s change over the past 10 years shows where the transition might end up as in the past five years it has performed the best of the non-mining states.
Before the GFC, NSW grew off the back of the housing boom. The finance and insurance industry contributed the most to growth. In the past five years, however, the professional, scientific and technical services industry has been the biggest driver of growth.
This industry includes professions such as lawyers, accountants, engineers, scientists, computer systems designers and architects. In essence it is the industry we talk of when we talk of a highly skilled, highly educated, high wage economy.
Forty years ago, this industry was a quarter the size of the manufacturing industry; 15 years ago it was half the size; now they are equal. It won’t be long till it is bigger.
While the Treasury expects the mining sector to grow in importance until 2030, the construction industry is near its peak. Perhaps the future growth industry will be one in which we take advantage of our skills. Politicians for years have talked about our high tech workforce and the need to build skills. In the next 10 and 20 years we’ll see if this was all talk, or if we can deliver.
guardian.co.uk © Guardian News and Media Limited 2010