Westpac Coast To Coast (March2013)

Westpac Coast-to-Coast
March 2013
An update on Australia's state economies
Institutional Bank.
Contents
Overview Australian economic outlook States overview Consumers: a state view Housing: state update Employment: a state view States New South Wales: construction a bright spot Victoria: ouch Queensland: returns to new normal Western Australia: another record year South Australia: concern builds Tasmania: underperforms Summary indicators Forecasts: state activity and employment 11 13 15 17 19 21 23 24 3 5 7 8 9
Coast-to-Coast produced by Westpac Economics Editors Andrew Hanlan & Matthew Hassan, Senior Economists Elliot Clarke, Economist Internet: www.westpac.com.au Bloomberg: WBCE <GO> Email: economics@westpac.com.au
This issue was finalised on 22 March 2012
Westpac Coast-to-Coast March 2013
Australian economic outlook

The Coast-to-Coast Report highlights how the Australian economy has lost considerable momentum through the second half of 2012. In the first half of 2012 annualised growth momentum was around 3.5% while in the second half it slowed to 2.5%. On average we expect growth to slow from 3.6% in 2012 to 2.5% and 2.3% in 2013 and 2014 respectively. The key theme will be the inability of demand, including government, to adequately fill the gap in demand created by the slowdown in mining expenditure over the course of 2013 and 2014. Indeed this report highlights that mining investment growth already slowed markedly in the second half of 2012. The mining boom is expected to peak in 2013 with mining spending swinging from a contributor to growth in 2012 to a drag in 2014. The expectation from the authorities is that non mining investment and household spending will respond to lower interest rates and accelerate to fill the void. Some evidence has been building with consumer confidence rising by 11% since October although business confidence has been flat. Investment, employment intentions and house prices appear to have stabilised but manufacturing, in particular remains weak. Households are concerned about job security. Recent strong growth in equity markets has allayed concerns amongst consumers around the global economy while businesses are responding to soft demand with plans to raise efficiency levels and limit expansion plans. With 2013 being a Federal election year both households and business are impacted by political uncertainty. Indeed, political issues have dampened confidence, both business and consumer, through 2012. That is unlikely to pass until well beyond Election Day on September 14 as businesses, in particular, scrutinise the policies of whichever party is elected with, hopefully, a clear majority. Fiscal policy stands as a significant headwind to a more robust response by the economy to the low interest rates. In previous easing cycles fiscal policy has supplemented monetary policy particularly around the housing market with direct subsidies to First Home Buyers. In this cycle First Home Buyer subsidies have been reduced and /or been limited in all states. First Home Buyers have failed to respond, in turn constraining any boost to housing finance growth. Investors and upgraders are being required to "carry" the recovery. To date an encouraging response from investors has been limited to NSW with diverse regional conditions highlighting considerable difficulties in engineering a nationwide boost to property markets, despite aggressive rate competition amongst banks. House prices have shown some evidence of responding to near record low rates but, to date, evidence is patchy. Public demand has also constrained growth. With state governments under considerable pressure to sustain their AAA/AA+ ratings with ratings agencies spending cuts have been imposed at the state government level. Australia's unemployment rate has edged up slightly despite near record low interest rates. Until the February Employment Report hours worked and employment to population ratio pointed to weak demand for labour although a falling participation rate has held down the unemployment rate. The February Report, which printed a stunning 71,000 jobs and yet no reduction in the unemployment rate appears to be partly distorted by statistical issues highlighting a significant danger in declaring a return to a strong jobs market. Lead indicators point to ongoing labour market weakness in 2013. We estimate that the unemployment rate is likely to exceed 6% by early in 2014 unnerving households and constraining any recovery in consumer confidence. Under these circumstances the output gap will widen and inflation pressures are likely to ease. Efficiency gains by firms, limited demand pressures and an Australian dollar which remains elevated will contain inflation pressures. Following the February Employment Report markets are now forecasting that rates are near bottom with hikes likely in 2014. That is not consistent with our scenario. We expect a further rate cut in June, or shortly thereafter, and an extended period of rate stability. We cannot see a rate hike in 2013 or 2014. Whether a second round of rate cuts begins much later in 2013 and into 2014 will be determined by the state of the global economy. Our view is that the risks favour "disappointment" in the global outlook in the second half of 2013 and into 2014. Expectations for a solid upswing in China, European stability, and a lift in the pace of underling private demand in the US will dominate global views for the next six months or so. The reality is likely to be less encouraging with China's growth plateauing in response to modest policy restraint, Europe remaining in recession for another year, and US growth being contained in the 12% range as excessive sovereign and household debt constrain confidence. In Europe and the US, governments will deal poorly with high sovereign debt and banks will continue to limit support to the housing market. Accordingly, while our central forecast is for one more rate cut to be followed by a long period of rate stability the balance of risks favour a renewed easing cycle in late 2013 and into 2014. Under this scenario we look for a marked down shift in global commodity prices around the second half of 2013 and into 2014. Slowing global demand and increased supply, which has been responding to rising demand in the first half of 2013, will dictate this downshift. We expect the Australian dollar, after peaking around USD1.05 by mid-year, will be on a down trend through 2013 and into 2014. Potential further rate cuts, softening commodity prices and elevated global risks will be headwinds for the AUD. Bill Evans, Chief Economist 3
Australian economic outlook

Chart 1. Chart 2.
Australian economic conditions

% ann 8 6 4 2 0 -2 Dec-98
Domestic demand GDP
Hours worked contract

% ann
f/cs end '14
8 8 6 4 2 0 -2 6 4 2 0 -2 -4
% ann
Real GDP (lhs)
% ann
Hours worked (rhs)
8 6 4 2 0 -2
GDP growth, average: 3.5%, 1998 to 2007 2.5%, 2008 to 2014
Sources: ABS, Westpac Economics
Sources: ABS; Westpac Economics
Labour market soft Hours worked contract
-4 -6 Dec-12
Dec-02
Dec-06
Dec-10
Dec-14
-6 Dec-88
Dec-92
Dec-96
Dec-00
Dec-04
Dec-08
Chart 3.
Chart 4.
Australian growth mix

4 3 2 1 0 -1 -2
* includes housing
Housing & mining investment, share of GDP

ppts cont' 4 3 2 1 0 -1 -2 2
2009: 2.4% Latest: 6.5%
ppts cont'
updated: Mar 13
contributions to GDP growth
% of GDP
% of GDP
2004: 6.4% Latest: 4.7%
f/cs end 2014
8 6 4
Mining, CAPEX
8 6 4
2012f
2013f
2014f
Housing
2 0
Consumer* Mining inv.
Business investment
Net X
GDP
0 Dec-88 Dec-92 Dec-96 Dec-00 Dec-04 Dec-08 Dec-12
Chart 5.
Chart 6.
Household savings rate

14 12 10 8 6 4 2 0 -2 -4 Dec-88
Business confidence & commercial finance

% income 14 12 10 8 6 4 2 0 -2 -4 -10 -20 -30 Jan-01
Business confidence* (lhs) Commercial finance* (rhs)
* Smoothed (2mth / 3mth avg)
% income
Latest: 10.1% Post 2008 avg: 10.3%
30 20 10 0
index
% ann
Sources: ABS, NAB, Westpac Economics
60 40 20 0 -20 -40 -60
Dec-92
Dec-96
Dec-00
Dec-04
Dec-08
Dec-12
Jan-04
Jan-07
Jan-10
Jan-13
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
States overview
Demand growth: annual
18 15 12 9 6 3
0.6 2.7 0.9 0.3 -0.1 -4.6
% ann
Dec-11 yr Dec-12 yr
9.2 9.9 14.2
The Australian economy experienced a loss of momentum during 2012. This was a trend across the states, although understandably from differing starting points. Domestic demand growth over the second half of 2012 was weaker than the initial six months of the year in each of the states. In the December quarter, only NSW (0.4%) and WA (0.5%) experienced positive state demand. Qld experienced a flat quarter, while declines were recorded in the three southern non-mining states of Victoria (1.1%), South Australia (0.5%) and Tasmania (0.6%). These outcomes reflected the combined impact of a global downturn and ongoing domestic headwinds. The mining sector was not immune. A slump in global commodity prices and rising domestic costs led to an abrupt deceleration of mining investment. Private infrastructure investment, centred on mining, jumped more than 40% over the first half of 2012 in WA, but rose only 2.6% over the second half of the year. Ongoing domestic headwinds shaped conditions, particularly in the southern states. In this low-growth environment, businesses across the broader economy are reluctant to invest and jobs growth has been sub-trend. Indeed, hours worked across the nation contracted in 2012. Consumers felt the pinch from a slowing of wage incomes. At the same time, households remain focused on reducing debt from current high levels. This combination of weak incomes and a stretched balance sheet led to a tightening of belts. Consumer spending approached stalling speed over the second half of 2012 in Qld (0.7%), NSW (0.4%) and SA (0.3%), while consumers cut spending in Victoria (0.2%) and Tasmania (1.2%). In WA, spending growth moderated from 4.3% to 2.4% between the two half years. A shift to a low interest rate environment is having some impact. The housing sector is beginning to respond and consumer confidence has improved across the nation, boosted by a rise in household wealth.
4.6 2.2 1.9 2.4 3.5
0 -3 -6 Tas
Vic
SA
Qld
NSW
Aus
WA
Domestic demand growth

18 15 12 9 6 3 0 -3 -6 Dec-90
% ann
WA, NT (16%) Vic, SA, Tas (31%) NSW, Qld, ACT (53%)
smoothed
% ann
18 15 12 9 6 3 0
latest 6mths (annualised)
-3 Dec-10 -6 Dec-14
Dec-94
Dec-98
Dec-02
Dec-06
Growth: state government forecasts

8 7 6 5 4 3 2 1 0 Tas SA Vic NSW Qld WA Aus
1.0 0.5 1.5 2.5 2.1 1.8 2.3 2.5 2.0 2.4 2.8 2.0
% chg
Sources: State budget papers, Westpac Economics
6.7
2011/12
2012/13f
2013/14f
6.0 5.0
Westpac f/cs
However, the upswing of new dwelling construction is uneven and is likely to remain so. NSW, suffering from a shortage of housing stock, led the upturn over the second half of 2012, up 11.5%. A recovery is evident in WA, up 7.4% over this period, but not yet in Qld. An abundance of supply is likely to temper any recovery during 2013 in the southern states. The most recent forecasts from each of the state governments pre-date the disappointing December quarter state demand figures, published in early March. Westpac Economics is of the view that sub-trend growth is likely to persist in 2013 and 2014 as mining investment begins to decline. Business confidence remains fragile, compounded by Federal Election uncertainty and the high Australian dollar. While the household sector is constrained by high debt. In addition, in our view the recent strengthening of global growth, while a plus for now, is likely to falter.
Government f/cs
4.0 3.8
3.5
3.4 2.9 2.4
States overview
Chart 1. Chart 2.
State demand, contributions

4 3 2 1 0 -1 -2 -3
NSW
State demand, contributions

18 ppts ann
Housing Business construction WA Public demand Demand
ppts ann
Housing Business construction Public demand Demand
15 12 9 6 3
Qld
Tas
Vic
SA
0 -3 -6
Dec-11
Dec-12
Dec-11
Dec-12
Dec-11
Dec-12
Dec-12
Dec-12
Dec-11
Dec-12
Dec-11
Dec-12
Chart 3.
Chart 4.
Established house prices turn

50 40 30 20 10 0 -10
Dwelling approvals, private

% ann 50 40 30 20 10 0 -10
% ann
Sydney Melbourne
latest 6mths (annualised)
index
Jan '09 = 100 3mth m.a.
index
NSW Vic Tas SA Qld WA
Brisbane Perth
200
200
150
150
100
100
-20 Dec-00
-20 Dec-08 Dec-00 Dec-08
50 Jan-07
50 Jan-11 Jan-07 Jan-11
Chart 5.
Chart 6.
Business investment: by state

24 20
NSW + Vic
Exports trend higher in NSW, Qld & WA

Construction $bn 24 25 20 15 16 12 8 4 0 5 -5 -15
Sources: ABS, Westpac Economics Qld & WA exports hit by disruptions
$bn
Equipment
% ann
smoothed
% ann
Qld NSW Vic WA
03/04 to 07/08
25 15 5 -5 -15 -25
16 12 8 4 0 Dec-91
NSW + Vic WA + Qld
WA + Qld
Dec-99
Dec-07
Dec-91
Dec-99
Dec-07
-25 Dec-97
Dec-03
Dec-09 Dec-97
Dec-03
Dec-09
Consumers: a state view

Chart 1. Chart 2.
Consumption per capita: by state

10 8 6 4 2 0 -2
Labour income per capita: by state

%
* smoothed, real
%
NSW Qld SA Vic WA
10 8 6 4
15 10 5 0
%
NSW Qld SA Vic WA
* smoothed, real
15 10 5 0 -5 -10
2 0 -2 -5 -10
-4 -4 Dec-88 Dec-91 Dec-94 Dec-97 Dec-00 Dec-03 Dec-06 Dec-09 Dec-12
-15 -15 Dec-88 Dec-91 Dec-94 Dec-97 Dec-00 Dec-03 Dec-06 Dec-09 Dec-12
Chart 3. Consumer spending experienced a marked slowdown in 2012 as households opted to maintain high savings rates in the face of slowing income growth. Looking at the slowdown by state and adjusting for differentials in population growth, the most pronounced weakening was in Vic, followed by a milder but still significant moderation in Qld. NSW, SA and WA were relatively steady, the latter at a notably higher rate than other states. Total labour income stalled flat in 2012 across the big eastern states and slowed markedly in WA (albeit at still relatively strong rates). Consumers' unemployment expectations a proxy for their sense of job security have improved in 2013, particularly in WA & Qld. But available state data suggests household savings rates remain high in most states. This caution is also reflected in survey-based measures of consumers' risk aversion which remains high nationally but varied by state. Chart 5.
Household savings rates: by state

ann% gross* net 25 30 20 15 10 5 0 10 11 12 10 11 12 10 11 12 10 11 12 10 11 12 10 11 12 Aus NSW Vic Qld WA SA ann%
*includes depreciation of assets, net savings estimate not available for states
30 25 20 15 10 5 0
Chart 4.
Consumers unemployment expectations: by state

200 180 160 140 120 100 80
*smoothed
unemp expd to fall Source: Melbourne Institute, Westpac Economics unemp expd to rise
Consumers risk aversion: by state

index
NSW Vic Qld WA SA
index
NSW Vic Qld WA SA
index
Tas
200 180 160 140 120 100 80 60 0 30 60
index
Tas
60
30
risk averse
0
risk seeking
60 Mar-06 Mar-08 Mar-10 Mar-12 Mar-06 Mar-08 Mar-10 Mar-12
-30 Mar-06 Mar-08 Mar-10 Mar-12 Mar-06 Mar-08 Mar-10 Mar-12
Source: Melbourne Institute, Westpac Economics
* index based on responses to wisest place for savings, smoothed
-30
Housing: state update

Chart 1. Chart 2.
Capital city dwelling prices

30 20 10 0 -10 -20 Mar-07 % %
* all dwellings, composite of all measures, annualised, seasonally adjusted
Auction activity: more convincing recovery

30 20 10 0 -10 -2 -20 Mar-12 Mar-13 -3 Mar-03
*seas. adjusted by Westpac, smoothed figures show avg proportion of properties sold via auction (i.e. vs private treaty) deviation from long run average
Sources: APM, RP DataRismark, Westpac Economics
4 3 2 1 0 -1
st. devns
auction clearance rates

Sydney (14%) Melbourne (20%) Brisbane (2.5%) Adelaide (6%) Perth (0.5%)^ Hobart (3%)^
st. devns
4 3 2 1 0 -1 -2 -3
Sydney Perth
Melbourne Adelaide
Brisbane
Sources: ABS, RP Data-Rismark, APM, Residex, Westpac Economics
Mar-08
Mar-09
Mar-10
Mar-11
Mar-07
Mar-11
Mar-03
Mar-07
Mar-11
Chart 3. After moving through an extended correction across most markets in 2011-12, dwelling prices have firmed across the board since mid 2012. More timely data shows a strong start to 2013 for auction market activity, suggesting further improvement. Conditions vary markedly across states though. Price wise, Perth and Sydney have been notably stronger for longer, with Melbourne a more recent improver, and patchy performances continuing for Brisbane and Adelaide. Most consumers expect price gains to continue although expectations are patchier outside of NSW and WA and outright pessimistic in Tasmania. From investors' perspective, gross rental yields on units have pushed above 5% in most capital cities, with Melbourne and Adelaide notable exceptions. On the supply side, approvals have risen strongly in WA & NSW but have been more uneven in Vic, flat in Qld and weak for SA and Tasmania. Chart 5.
Consumers: house price expectations

100 80 60 40 20 0 -20
*% reporting expected rise minus % reporting expected fall
Source: WestpacMelbourne Institute
net % NSW
house prices, next 12mths Vic Qld SA WA
net % Tas
100 80 60 40 20 0 -20 -40
-40 Jan-09
Jan-11
Jan-13
Jan-09
Jan-11
Jan-13
Chart 4.
Rental yields
10 9 8 7 6 5 4 3
*median rent on 2bdrm unit as % median unit price, adjusted for vacancies
Dwelling approvals by state

median gross rental yield*
Sydney Melbourne Brisbane Adelaide Perth Hobart
latest as at Dec
10 9 8 7 6 5 4 3
180 160 140 120 100 80 60 40
index
NSW (23%) Vic (29%) Qld (23%) SA (7%) WA (14%) Tas (2%)
index
180 160 140 120 100 80
national avg since 1980
trend, Jan 2002 = 100 figures in brackets show %national last 10yrs
Sources: ABS, Westpac
60 40 20
2 Dec-88
Source: REIA, Westpac Economics
Dec-98
Dec-08
Dec-88
Dec-98
Dec-08
20 Jan-02 Jan-05 Jan-08 Jan-11 Jan-02 Jan-05 Jan-08 Jan-11
Employment and activity: a state view

Chart 1. Chart 2.
State jobs markets

108 106 104 102 100 98 96 94 Feb-09
Australia: jobs & domestic demand

index 108 106 6 4 2 2 0 -2 -4 Dec-87
Jobs * (lhs)
* qtrly average
index
Dec 10 = 100
% ann
% ann
updated Mar 13
8 6 4
NSW
Vic
Qld
WA
104 102 100 98 96 94

Jobs undershoot
0 -2
Domestic demand, adv 2qtrs (rhs)
-4 -6
Feb-12
Feb-09
Feb-12
Dec-92
Dec-97
Dec-02
Dec-07
Dec-12
Chart 3.
Chart 4.
NSW: jobs & demand

10 8 6 4 2 0 -2 -4 Dec-87
* smoothed, ** qtrly, average
Victoria: jobs & demand

% ann
Domestic demand adv 2 qtrs *, lhs Jobs **, rhs
% ann
7 6 5 4 3 2 1 0 -1 -2 -3
10 8 6 4 2 0 -2 -4 -6
% ann
% ann
8 6 4 2 0 -2

-4 -6 -8
Dec-92
Dec-97
Dec-02
Dec-07
Dec-12
-8 Dec-87
Dec-92
Dec-97
Dec-02
Dec-07
Dec-12
Chart 5.
Chart 6.
Qld: jobs & demand

14 12 10 8 6 4 2 0 -2 -4 -6 Dec-87 Dec-92
Domestic demand adv 2 qtrs *, lhs * smoothed, ** qtrly, average Jobs **, rhs
WA: jobs & demand

% ann 8 16 6 12 4 2 0 -2 -4 8 4 0 -4 -8 Dec-87
% ann
20
% ann
% ann
10 8 6 4 2 0 -2 -4
Dec-97
Dec-02
Dec-07
Dec-12
Dec-92
Dec-97
Dec-02
Dec-07
Dec-12
Employment by industry
Chart 1. Chart 2.
NSW: jobs by sector, annual change

Leisure & hospitality Health & education Wholesale & transp. Manufacturing Agriculture Business services Mining Utilities Finance & real estate Retail Construction Government
Vic: jobs by sector, annual change

Retail Health & education Wholesale & transp. Finance & real estate Business services Leisure & hospitality Construction Government Mining Agriculture Utilities Manufacturing
Q4 '11, Q1 '12 Q4 '12, Q1 '13

Q4 '11, Q1 '12 Q4 '12, Q1 '13
-80 -60 -40 -20 0 20 40 60 000 change in employment
80
-60
-40 -20 0 20 40 000 change in employment
60
Chart 3.
Chart 4.
Qld: jobs by sector, annual change

Wholesale & transp. Mining Construction Leisure & hospitality Business services Health & education Retail Government Finance & real estate Agriculture Manufacturing Utilities
WA: jobs by sector, annual change

Business services Retail Utilities Agriculture Mining Health & education Construction Wholesale & transp. Manufacturing Government Leisure & hospitality Finance & real estate
Q4 '11, Q1 '12 Q4 '12, Q1 '13
Q4 '11, Q1 '12 Q4 '12, Q1 '13
-40
-20 0 20 40 60 000 change in employment
80
-20
0 20 40 000 change in employment
60
Chart 5.
Chart 6.
SA: jobs by sector, annual change

Health & education Business services Wholesale & transp. Government Mining Construction Utilities Retail Leisure & hospitality Manufacturing Finance & real estate Agriculture
Tas: jobs by sector, annual change

Health & education Manufacturing Business services Mining Utilities Finance & real estate Wholesale & transp. Government Agriculture Construction Leisure & hospitality Retail
Q4 '11, Q1 '12 Q4 '12, Q1 '13

Q4 '11, Q1 '12 Q4 '12, Q1 '13
-30
-20 -10 0 10 20 000 change in employment
30
-9
-6
-3 0 3 6 9 000 change in employment
12
10
NSW: a tough year for consumers ...

Contributions to state final demand
Consumption Housing Investment Public Final demand -0.6 0.0 0.6 1.2 ppts
-0.3 0.4 -0.2 0.0
1.5 1.3
NSW's economy experienced a loss of momentum over the second half of 2012, mirroring a trend nationally. The outlook is for a modest improvement on the back of lower interest rates, constrained by persistent headwinds. State domestic demand expanded by 1.9% over the first half of 2012, slowing to a rise of 0.5% over the second half of the year. Annual demand growth moderated from 3.8% in Q2 to 2.4% in Q4, an outcome below the historic average of 3.2%. Consumer spending stalled over the second half of 2012, with rises of only 0.1% in Q3 and 0.3% in Q4. Government cash payments did see a bring forward of spending into Q2. More fundamentally, consumers adjusted to softer wage incomes. Consumer spending is likely to recover somewhat, supported by an improvement in household wealth. Notably, the WestpacMI Consumer Sentiment Index for NSW rebounded to 113 in the month of March, from an average 98 in Q3 and 104 in Q4.
yr Dec 11
0.9 0.6
yr Dec 12
1.9 2.4
1.8
2.4
3.0
Consumers: consumption & wage income

10 8 6 4 2 0 -2 -4 -6 Dec-92
Labour income Consumption
real
% ann
Consumption: +2.2%yr 25 year avg: +3.0%yr
% ann
8 6 4 2 0 -2 -4
Public demand was the other key driver of recent softer demand. Government revenues have been dented by the current low growth environment. Also, a pull-forward of public investment into the 2011/12 financial year led to a temporary let down effect over the second half of 2012. The NSW economy stands to benefit more than most from a shift to a low interest rate environment given a sizeable degree of pent-up demand for housing stock. A response is underway, with new dwelling construction rebounding 14% over 2012, returning to the peak of late 2010. However, this improvement in 2012 was fully offset by a slump in renovation activity, down 15%. NSW's mining sector, with a focus on coal, has responded to relatively high global commodity prices. This is evident from an upswing in private infrastructure investment, which advanced 35% over the year, following on from a 25% lift during 2011. The payoff is becoming evident, with additional coal shipments.
Dec-96
Dec-00
Dec-04
Dec-08
Dec-12
New dwelling upswing underway

80 60 40 20 0 -20 -40 -60 -80 Dec-92
% ann
# smoothed
% ann
New dwelling investment (lhs) Approvals, adv 2qtrs# (rhs)
60 40 20 0 -20 -40 -60
NSW exports of goods increased by 8.3% in 2012, an outcome exceeding the historic average of 6.8%. Also, this contrasts with the non-mining states of Victoria, SA and Tasmania, which experienced a drop-off in exports during 2012. The uptrend in total business investment is set to extend into 2013. However, just how strong investment will be is unclear. Gains of 7% and 5% were recorded for 2011 and 2012 respectively. Infrastructure activity, 20% of total business investment, will remain a key driver with the pipeline of work up 30% in the six months to September 2012. The pipeline of non-residential building work has grown as well, as the Barangaroo project proceeds. The weak link to date is equipment investment, at a time of patchy consumer spending. A recovery in household demand from recent weakness will be supportive of investment. However fragile business confidence poses a downside risk.
Dec-96
Dec-00
Dec-04
Dec-08
Dec-12
11
... construction a bright spot

Chart 1. Chart 2.
Domestic demand
10 8 6 4 2 0 -2
Historic avg: NSW, 3.2% ann
NSW economic performance & outlook

% ann 10 8 6 4 2 0 0 -2 -4 Dec-04 Dec-08 Dec-12 -2 1990/91
Sources: ABS, NSW Gov't, Westpac Economics
% ann
NSW Australia
8 6 4 2
% chg
GSP
GSP: 2.6% avg.
% chg
State demand
Gov't f/cs
(Dec 12)
8 6 4 2 0 -2
-4 Dec-96
Dec-00
1995/96
2000/01
2005/06
2010/11
Chart 3.
Chart 4.
NSW exports on the up, boosted by coal

% ann 20
NSW Australia
Established house prices, advanced in 2012

% ann % ann 50 20 40 10 30 20
Sydney Capital cities, average
2 qtr change, annualised
% ann
exports of goods, smoothed
50 40 30 20 10 0 -10
NSW: +8.3%yr
10
0
WA & Qld exports hit by cyclones & flooding
10 0
-10 Dec-90
-10 Dec-02 Dec-06 Dec-10
Dec-94
Dec-98
-10 Dec-86 Dec-90 Dec-94 Dec-98 Dec-02 Dec-06 Dec-10
Chart 5.
Chart 6.
Non-residential construction pipeline expands

12 10 8 6 4 2 0 Dec-90
Business investment: equipment spend stalls

12 10 8 6 3 4 2 0 2 1 0 Dec-88
$bn
Non-res. building
Work done Yet to be done Approvals
Infrastructure
Work done Yet to be done Commencements *
* 2qtr avg
$bn
7 6 5 4
% of demand
Equipment * Non-residential building Engineering
% of demand
* Smoothed, excludes computer software etc
7 6 5 4 3 2 1 0
Dec-98
Dec-06
Dec-90
Dec-98
Dec-06
Dec-92
Dec-96
Dec-00
Dec-04
Dec-08
Dec-12
12
Victoria: ouch ...

Domestic demand: Vic crunched
10 8 6 4 2 0 -2 -4 -6 -8 Dec-88
% ann
% ann
10 8 6 4 2 0 -2 -4 -6 -8
In the Dec 2012 edition of Coast-to-Coast we noted Vic's abrupt slowdown had resulted in a 'demand recession' (2 successive quarters of contracting state demand), with weakness across multiple fronts and a pronounced drag from the public sector. The picture has mostly deteriorated since then, albeit with more mixed signals from the Vic labour market and some signs of improvement in the housing sector. The Q4 national accounts were very poor for Vic. The state experienced another contraction in demand, the 3rd quarter in a row and, at 1.1%, the worst to date. Demand has stalled on an annual basis, with Vic's 0.1%yr in stark contrast to the 3.5%yr gain nationally. The Q4 detail is partially obscured by a large asset transfer from the private to the public sector that has seen several components of state investment withheld by the ABS due to confidentiality reasons. The transfer appears to be Vic's $4.5bn desalination plant which was completed late last year. Where applicable we have presented Q4 estimates assuming this is the missing figure. The public sector has been the main swing factor in Vic's under-performance. Consumer spending has been weak, rising just 0.3% in Q4, but is broadly in line with the weakness seen nationally. Private investment has been flatter in Vic than that seen nationally, not surprising given Vic's 'non-mining' status, but, on our estimates still made a small positive contribution to annual demand growth in 2012, despite an estimated 4% pull back in Q4 (from a 5.3% gain in Q3). In contrast, public demand contracted by close to 10% in 2012. Government consumption (direct purchases of goods and services by the public sector) declined 2.4% over the second half of the year the biggest 6mth contraction since the early 1990s recession, which was a particularly harrowing experience for Vic. The more spectacular decline was in public investment though. This item was heavily impacted by the aforementioned asset transfer but our estimates suggest underlying 'new' public investment collapsed by 60-70% over 2012H2. Fiscal austerity and the end of a major round of public investment has effectively taken over 2ppts off demand. The weak economic performance is also evident in Vic's labour market but with a fair few 'quirks' in the data. Employment stalled flat over 2012H2 after rising at a 2.6% annual pace over H1. Government dominated sectors added 0.3ppt to headline jobs growth in 2012, compared to close to 1ppt in 2011. The employment numbers for early 2013 suggest some improvement but are extremely problematic due to extreme volatility, some of which appears to be a survey quality issue. Latest data on Vic's housing sector has had a better tone in 2013. Housing investment rose over the second half of 2012, with activity up 4.6% in Q4, 5.1%yr. Approvals point to more modest gains ahead. In the established market, auction activity has shown a marked improvement in 2013 with clearance rates lifting to be back near long-run averages vs soft levels late last year. Monthly house price measures also suggest these have stabilised in 2013 after showing more persistent slippage through 2012 than that seen nationally.
Victoria
Australia
Dec-93
Dec-98
Dec-03
Dec-08
Victoria: contributions to state final demand

yr Dec 11 yr Dec 12
*Dec-12 figure is a Westpac estimate, see text for details
Consumption Housing Investment* Public* Final demand -4
1.6 1.1 0.2 0.3 0.6 0.5 0.5
-2.1
2.7 -0.1
-2
0 ppts
Vic employment: extreme volatility over Jan-Feb

40 30 20 10 0 -10 -20
* smoothed
'000
jobs, mth chg (lhs) jobs, 6mth chg, annual'd* (rhs)
% ann
8 6 4 2 0 -2 -4
-30
-6 -8 Feb-11 Feb-13
-40 Feb-07
Feb-09
13
... growth flattened by fiscal punch

Chart 1. Chart 2.
Vic: public demand

6 4 2 0 -2 -4
*excl. asset transfers, Dec-12 is Westpac estimate, 6mth annualised contribution to state final demand
Business investment uneven

% ann 6 4 2 0 3 -2 -4 -6 Dec-06 Dec-10 2 1 0 Dec-92 Dec-96 Dec-00 Dec-04 Dec-08 Dec-12 3 2 1 0 7 6 5 4 $bn
% ann total* state & local state & local - investment only
$bn
7 6 5 4
equipment
*new
non-residential building engineering
-6 Dec-98
Dec-02
Chart 3.
Chart 4.
Vic: household income growth stalls

% ann 11 8
avg since 2008
Vic employment by sector

% ann 11 8 5 2 -1 4 3 2 1 0 -1 ppts
mining, utilities, constn manufacturing educ, health, govt business services consumer
last 6mths annd
ppts
4 3 2 1 0 -1
labour income
*real
consumption
5 2 -1 -4 Dec-00
-2
*contribution to total state employment growth (ann avg)

Source: ABS, Westpac Economics
-2 -3 Feb-11 Feb-13
-4 Dec-08 Dec-12
Dec-04
-3 Feb-05
Feb-07
Feb-09
Chart 5.
Chart 6.
Housing construction: modest rally in approvals

60 40 20 0 -20 -40 Dec-91 %ann
new dwelling investment approvals, adv 2qtrs
House prices: Melb stabilises

40 30 20 10 0 -10 Mar-92 % ann
Melbourne
%ann
60 40 20 0 -20 -40
% ann
Sources: RP Data; Westpac Economics
40 30 20 10 0 -10
capital cities avg.
Dec-95
Dec-99
Dec-03
Dec-07
Dec-11
Mar-96
Mar-00
Mar-04
Mar-08
Mar-12
14
Queensland: returns to new normal ...

Qld domestic demand: growth on the slide
15 12 9 6 3 0 -3 -6 -9 Dec-90 Dec-94
Qld Australia
% ann
% ann
15 12 9 6 3 0 -3 -6 -9
Queensland remained in the doldrums in Q4, with state final demand growth a whisker below zero following a 0.8% decline in Q3. Annual growth has now decelerated to just 2.2%yr, a fraction of Q4 2011's 9.2%yr result. The impetus behind 2011s strong growth came from business investment, specifically rapid growth in engineering construction associated with three large LNG projects. While the completion of these projects is still a way off, the majority of the available growth dividend has been received; from here on out, growth in engineering construction is likely to maintain a much more modest pace. Herein is reason to suspect that Queensland's recent return to earth is more likely permanent than not. Whats more, with the Qld coal industry facing challenging times and the high Australian dollar severely impacting the state's competitiveness in other externally-focused industries (specifically, tourism and education), Qlds future growth prospects will largely rest on domestic demand. In Q4, household consumption growth was soft at 0.3%; annual growth remained a healthy 3.4%yr, although that is softer than the 4.4%yr seen during H1 2012. Housing investment rebounded in Q4, rising 5.3%; however, that followed a 8.9% fall in Q3, and leaves annual growth at just 2.9%yr. Renovation work has been much weaker than new dwelling construction: in Q4, new dwelling investment recovered the ground lost in Q3, but renovation activity only managed to recover a fraction of Q3's 8.3% fall; over the year, new dwelling construction is up 14%yr, but renovation work is little changed.
Dec-98
Dec-02
Dec-06
Dec-10
Qld: Contributions to state final demand
Consumption Housing Investment Public Final demand -2 0

0.0 -0.4 -0.4 0.1
1.7 1.7
yr to Dec 2011 yr to Dec 2012 7.3
1.1
9.2 2.2
4 ppts
10
12
Softer household consumption growth and weakness in renovation work is not a Qld-only phenomena. Rather, it is in line with a broad-based trend which is a function of consumer caution and low credit growth. Housing finance data up to January points to activity in this sector remaining weak. What is particularly concerning is that first-home buyers key for new construction remain largely absent.
Qld budget: austerity drive to regain AAA rating For Qld at least, a key part of the underlying story is an
3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0 -4.0 2011/12 2012/13 2013/14 2014/15 2015/16
fiscal balance (lhs) underlying' fiscal balance (lhs)* net financial liabilities (rhs)
* excluding net disaster related transaction AAA credit range
%GDP
%revenue
Sources: Queensland Treasury, Westpac Economics
140 120 100 80 60 40 20 0
absence of job creation. In trend terms, employment has risen by a meagre 0.3% over the year to February. Had it not been for a 0.9ppt decline in the participation rate over the same period, the Qld unemployment rate would be well above 6%, versus its current 5.8%. Not only do businesses seem reluctant to hire additional staff, they are also becoming more reluctant to invest. Annual investment growth has slowed from near 50%yr in late 2011 to just 5%yr currently. As noted above, this has primarily been due to a marked slowdown in engineering investment. However, we have also seen non-residential investment growth decline (to near flat), and equipment spending fall. Finally, the public sector clearly remains under pressure, with public demand down 1.6%yr on declining investment, down 16% through H2 2012.
15
... following LNG-induced surge

Chart 1. Chart 2.
Qld: business investment, activity still strong

$bn
Construction investment surge topping out

7 8 6 4 2 0 6 5 4 3 2 1 20 10 0 Dec-98 Dec-06 Dec-90 Dec-98 Dec-06 $bn non-res building
work done work yet to be done approvals work done yet to be done commencements
$bn
Up 164% on end 2010; just 18% on end 2011.
infrastructure
$bn
60 50 40 30
8
Equipment
6 4 2 0 Dec-92
Non-residential building Infrastructure
Dec-96
Dec-00
Dec-04
Dec-08
Dec-12
0 Dec-90
Chart 3.
Chart 4.
Qld consumers: mining boom mk2 much less fun

14 12 10 8 6 4 2 0 -2 -4 Dec-00
Qld housing approvals remain weak

'000 5 4 3 2
Sources: ABS, Westpac Economics *smoothed
% ann
labour income consumption
*real
period averages
% ann
14 12 10 8 6 4 2 0 -2 -4
private dwelling approvals

Qld (lhs) Australia, ex Qld (rhs)
'000
13 12 11 10 9 8
Peak Mar 2010
7 6
Dec-04
Dec-08
Dec-12
1 Jan-90
Jan-94
Jan-98
Jan-02
Jan-06
Jan-10
Chart 5.
Chart 6.
Qld labour market soft

66 64 62 60 58
employment to population ratio (lhs)
labour market weaker than unemp rate suggests
Population growth accelerating

% 12 10 8 6 4 3.5 3.0 2.5 2.0 1.5 1.0 0.5 Jun-82
% ann
Qld, 1.9%yr (lhs) Aust, 1.6%yr (rhs)
Avg: 2.5%yr
% ann
3.5 3.0 2.5 2.0 1.5 1.0 0.5
56 54 Feb-91
unemployment rate, trend (rhs)

2 0
Feb-95
Feb-99
Feb-03
Feb-07
Feb-11
Jun-87
Jun-92
Jun-97
Jun-02
Jun-07
Jun-12
16
Western Australia: another record year ...

State demand: strongest year yet for WAs boom
% ann 16 12 8 4 0 -4 -8 Dec-88
% ann
WA Aust
Despite a strong rise in state demand over 2012, WA is starting to show distinct signs that the latest ramp up in the mining boom is starting to reach a crest. Demand quarter to quarter has shown a significant deceleration: rising just 0.5% in Q4 vs 2.9% in Q3, 2.1% in Q2 and 8.2% in Q1. Some of this is likely to be a temporary 'soft patch' reflecting the sharp jolt to confidence mid to late last year when slumping commodity prices and associated project cancellations/deferrals and cost cutting saw severe fears of a hard landing for the mining sector. Commodity prices have since rallied and confidence has mostly been restored. However, the construction pipeline, which has been shrinking steadily since mid-2011, is clearly pointing to a moderation in WA's investment-dominated demand growth.
16 12 8 4 0 -4 -8
Dec-92
Dec-96
Dec-00
Dec-04
Dec-08
Dec-12
WA: contributions to state final demand
Consumption Housing Investment Public Final demand -4 0

0.9 0.5 -0.2 -0.6
2.6 3.0
yr Dec 11 yr Dec 12
6.5 11.0
Even with the soft finish, 2012 will still go down as the strongest year yet for WA's mining boom. State demand increased 14.2% through the year and, although that annual pace has been eclipsed (in 2011 and 2006), the 13.6%yr rise for the combined 2012 calendar year is a new record, a feat all the more impressive given the high starting point. The December quarter on its own was less robust though. Household consumption continued to record solid growth, rising 1.1% (6.9%yr), but housing investment fell back 1.5%qtr (9.8%yr). Business investment flattened out, with an estimated 2.8% decline in non-residential and engineering construction (Westpac estimates some of the Q4 spending detail was withheld by the ABS due to confidentiality requirements - see Vic for more detail). On public demand, there is little to say: it was little changed in the quarter and up 2.8%yr.
9.9
14.2
4 ppts
12
16
Total hours worked: WA vs Aus

% ann 10 8 6 4 2 0 -2 -4 -6 -8 Sources: ABS, Westpac Economics -10 Feb-83 Feb-88 Feb-93 % ann 10 8 6 4 2 0 -2 -4 -6 -8 -10
WA
Australia
last 6 mths annualised
3mth rolling average
The deceleration is also apparent in WA's labour market. After rising 8.2% in the year to May 2012, growth in hours worked hit a wall mid-year and have declined over the six months to Feb. The turnaround has been less apparent in employment but trend growth here has also moderated from 4.7%yr to 3%yr. The disconnect may reflect the confidence 'jolt' in Q3 last year, with firms putting orders on hold and reducing staff loading but keeping the same headcount the nightmare of securing skilled workers out west no doubt fresh in many memories. What is also interesting though is that the rapid cool off appears to have flowed through very quickly to wages, with growth in wages pulling back in line with the national average over the second half of 2012. Looking ahead, retail sales suggest the jobs slowdown may be feeding through to demand. The key though will be how WA's still massive pipeline of mining capex work flows into quarterto-quarter activity from here on.
Feb-98
Feb-03
Feb-08
Feb-13
17
... but with a very shaky finish

Chart 1. Chart 2.
WA labour market
8 6 4 2 0 -2 -4 -6 Feb-93
WA jobs (lhs) Aust jobs (lhs) un. rate, WA (rhs)
WA wages growth reconverging?

%
WA govt estimates and forecasts^
% ann
12 10 8 6 4 2
7 6 5 4 3 2 1
% ann
Wage Cost Index, WA Australia, ex WA*
avg 5%yr
% ann
7 6
*trend; ^year average
4.5%yr
5 4 3
H2 annd *Westpac estimate

2 1
Mining boom MkI
MkII
Feb-97
Feb-01
Feb-05
Feb-09
Feb-13
0 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12
Chart 3.
Chart 4.
WA consumers: income and spending

% ann 16 12 8 4 0 -4 Sep-00
Retail sales: WA slows abruptly

% ann 16 1.2 1.5 % chg
trend, mth % chg
% chg
WA Australia ex WA
labour income consumption

*real
period averages
1.5 1.2 0.9 0.6 0.3 0.0
12 0.9 8 4 0 0.6 0.3 0.0

Mining boom MkI
MkII
-4 Sep-04 Sep-08 Sep-12
-0.3 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12
-0.3
Chart 5.
Chart 6.
WAs population influx on again

3.5 3.0 2.5 2.0 1.5 1.0
Construction pipeline peaks but still massive

% ann 3.5 3.0 2.5 3 2.0 2 1.5 1.0 0.5 1 0 Dec-89 30 20 10 Dec-97 Dec-05 Dec-88 Dec-96 Dec-04 0 Dec-12 5 4 $bn non-res. building
work done yet to be done approvals
% ann
WA Aust
infrastructure
$bn
70 60 50 40
work done yet to be done commencements
0.5 Jun-92
Jun-96
Jun-00
Jun-04
Jun-08
Jun-12
18
South Australia: concern builds ...

Domestic demand, a worrying trend
10 8 6 4 2 0 -2 Dec-92
% ann
SA Australia
% ann
10 8 6 4 2 0 -2
South Australia remains a key point of concern. In Q4, it experienced its second consecutive decline in activity (0.5%) following Q3's 2.7% print. Activity is now 3.1% lower than June 2012, back near its year-ago level. Of greater concern is that, had it not been for a 3.1% rise in public demand, the Q4 outcome would have been much worse, with private demand falling 1.5% in the quarter. The key area of weakness for SA is housing investment. It declined throughout 2012 to be down 16%yr. And, in contrast to the rest of the nation, new dwelling construction and renovation work have both fallen significantly in SA. Highlighting the pervasiveness of this trend, new dwelling construction is now 25% off its peak level (June 2011). Renovation work has declined by 16% over the 9 months to December.
Dec-96
Dec-00
Dec-04
Dec-08
Dec-12
SA: contributions to state final demand

0.2 -0.8 0.0 1.2
Consumption Housing Investment Public Final demand -0.1 -0.1

Household consumption meanwhile fell 0.2% in Q4. Available data on retail sales gives reason to suspect that household demand is on the improve, but growth is likely to remain modest. Total employment has risen by just 1.5k over the year to February in trend terms and the unemployment rate has risen by 0.7ppts to 5.8%. What's more, the participation rate remains 0.8ppts below its late-2008 peak. Not only is the jobs market providing little in the way of momentum, but SA population growth is also weak relative to the other states, limiting the natural growth impulse.
1.5
1.0 0.0
yr to Dec 2011 yr to Dec 2012
0.9 0.3 0.0 ppts 0.5 1.0 -1.0 -0.5
With manufacturing in a depressed state and the high Australian dollar also impacting the key agricultural sector, this situation is unlikely to change much in the near term.
AUD a significant burden for SA

40 30 20 10 0 -10 -20 -30 Dec-92
% ann
* exports of goods, smoothed
% ann
SA Australia
40 30 20 10 0 -10 -20 -30
Given the state of the household sector, the impact of the high Australian dollar and the absence of any big resource projects for the state, it is hardly surprising that business investment fell 6.5% in Q4 and is flat over the year. The weakness in investment is broad based. Despite a 6.3% rebound in Q4, equipment investment declined by 14% over 2012. Infrastructure and non-residential building both rose over the year (13%yr and 4.4%yr respectively), but activity in these sub-sectors fell sharply in Q4 (19% and 6% respectively). Of concern for the outlook, the pipeline of work to be completed looks to have peaked. This suggests that the business sector will likely continue to provide little in the way of support for growth in 2013. All told, 2013 will prove challenging for SA with growth hard to come by.
Dec-96
Dec-00
Dec-04
Dec-08
Dec-12
19
... as growth prospects dwindle

Chart 1. Chart 2.
SA jobs market, is the burst fading?

20 15 10 5 0 -1 -5 -10 Feb-07
Population growth
% ann 2.5 9 7 5 1.5 3 1 1.0 0.5 -3 1.0 0.5
regional migration schemes expanded
'000
Jobs, mth chg (lhs)
% ann
% ann
2.5 2.0 1.5
Jobs 6mth chg, annls'd* (rhs)
2.0
SA
Australia
* smoothed
-5 Feb-13
Feb-09
Feb-11
0.0 Jun-92
0.0 Jun-96 Jun-00 Jun-04 Jun-08 Jun-12
Chart 3.
Chart 4.
SA retail sales underperform

% chg 0.9 0.7 0.5 0.3 0.1 -0.1 -0.3
Private dwelling approvals still very weak

% chg
trend, mth % chg
SA
Australia
0.9 0.7 0.5
1.3 1.1 0.9
'000
SA (lhs) Australia (rhs)
'000
19 17 15 13
0.3 0.1 -0.1 0.5 -0.3

0.7 11 9 7 Jan-95 Jan-99 Jan-03 Jan-07 Jan-11
-0.5 Jan-09
-0.5 Jan-10 Jan-11 Jan-12 Jan-13
0.3 Jan-91
Chart 5.
Chart 6.
Business investment
1.6 $bn
Equipment
Construction pipeline starting to run off

$bn 1.6 4.0 3.5 1.2 3.0 2.5 0.8 2.0 1.5
Work done Yet to be done Approvals Work done Yet to be done
$bn
Non-res. building
Infrastructure
$bn
4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0
1.2
Non-residential building Infrastructure
0.8
0.4
0.4
1.0 0.5
0.0 Dec-90
0.0
Dec-94
Dec-98
Dec-02
Dec-06
Dec-10
0.0 Dec-90
Dec-98
Dec-06
Dec-90
Dec-98
Dec-06
20
Tasmania: underperforms ...

Tasmania: contributions to state demand
The Tasmanian economy is particularly vulnerable to the current low-growth environment, reinforced by a loss of momentum in the mainland economy during 2012. Tasmania's starting point was weaker than that of the other states, with the winds of structural change particularly hard felt. Tasmanian state demand was broadly flat in 2011, managing a rise of only 0.6%. This compares with an average rise of around 2% in NSW, Victoria and South Australia, and 4.6% nationally over this period. Weaker international conditions and ongoing domestic headwinds led to a downturn of the Tasmanian economy in 2012, with state demand contracting by 4.6% over the four quarters. Victoria and South Australia were the next weakest of the states, with demand broadly flat. Private and public demand in Tasmania both experienced a set back in 2012, declining by 5.5% and 2.2% respectively.
Consumption Housing Investment Public Final demand
-1.3 -0.9 0.6 -0.7 1.4 -2.4 0.2 -0.6 0.6
yr Dec 11 yr Dec 12
-4.6
-6
-4 ppts
-2
Population growth
2.5 2.0 1.5 1.0 0.5 0.0
% ann
Tasmania Australia
% ann
2.5 2.0 1.5 1.0 0.5
Consumers cut spending for a second year as wage incomes declined, household wealth fell and debt levels remained elevated. Consumption fell by 1.8% in 2012, following a 2.2% fall during 2011. Business equipment investment staged a rebound in 2011. However, this was largely unwound in 2012. Equipment spending subtracted 1.7ppts from annual state demand over the last year, following a 1.4ppts addition the year earlier. Despite this weakness, non-residential building activity and private infrastructure work managed to stabilise during 2012, albeit at weak levels. Indeed, there is some upside to infrastructure activity in the near-term, as evident from a lift in the work pipeline, boosted by Hydro Tasmania's $425mn wind farm at Musselroe Bay. Overall, the business investment environment is likely to remain challenging if household demand growth is sub-par and given a general lack of business confidence.
Slowest population growth since 2001
0.0 -0.5
-0.5 Jun-85
Jun-91
Jun-97
Jun-03
Jun-09
Tas economic performance & outlook

9 % chg
GSP
% chg
State demand
GSP: 2.0% avg.
Gov't f/cs
(Dec 12)
The state government, in the December budget update, downgraded their growth forecasts in light of a weaker than expected outcome in 2011/12. GSP increased by only 0.5% in 2011/12 and is forecast to improve gradually to 1.0% in 2012/13 and to 1.5% in 2013/14. Tasmania will benefit from a shift to a low interest rate environment. An improvement in conditions on the mainland in the non-mining sectors, from a weak second half of 2012, will also be a plus. Consumer confidence has rebounded in Tasmania, to 105 in the month of March, up from around 85 for much of the second half of 2012. Tempering this, population growth has slowed sharply and dwelling approvals softened further late in 2012, early 2013. On balance, the risks to the state government's already low growth forecasts are skewed to the downside.
0
Sources: ABS, Tas Gov't, Westpac Economics
-3 1990/91
-3 2005/06 2010/11
1995/96
2000/01
21
... challenges to persist

Chart 1. Chart 2.
Domestic demand
% ann 16
Tasmania
Goods exports
% ann 16 900 12 8 4 0 -4 850 800 750 700 650 600 Dec-92
950
$mn
AUDmn, 4qtr avg (lhs) Growth, yr avg (rhs)
% chg
12% decline 4 yrs to Dec 11
24 20 16 12 8 4 0 -4 -8 -12 -16
12 8 4 0 -4 -8 Dec-92
Australia
-8 Dec-04 Dec-08 Dec-12
Dec-96
Dec-00
Dec-96
Dec-00
Dec-04
Dec-08
Dec-12
Chart 3.
Chart 4.
Hobart house prices, slower to respond

% ann 50 40 30 20 10 0 -10 Dec-86 Dec-90 Dec-94 Dec-98 Dec-02 Dec-06 Dec-10
Hobart Capital cities, average
* ABS established house price series 2 qtr change, annualised
Consumer Sentiment: Australia & Tasmania

% ann index 50 40 30 20 10 0 -10 130 120 110 100 90 80 70 Mar-07
Sources: Westpac Economics, Melbourne Institute
index
Australia Tas*
* 2 month average
130 120 110 100 90 80 70 Mar-13
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Chart 5.
Chart 6.
Non-residential construction
0.4 $bn Building Infrastructure
work done work done
Business investment
$bn 1.2 0.7 0.6 0.9 0.5 0.4 0.6 0.3 0.2 0.1 $bn
$bn
Basslink
0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0
0.3
yet to be done commencements *

* 2qtr avg
Equipment * Non-residential building Infrastructure

* including computer software etc
yet to be done approvals *

* 2qtr avg
0.2
0.1
0.3
0.0 Dec-90
0.0 Dec-98 Dec-06 Dec-90 Dec-98 Dec-06
0.0 Dec-92
Dec-97
Dec-02
Dec-07
Dec-12
22
Summary indicators
Chart 1. Chart 2.
Gross State Product

% Tas SA WA Qld Vic NSW 0 20
2 6 16 19 22 31 61.5 58.1 62.0
Exports of goods & services

GSP per capita
47.4 Aust: 64.7 55.3 100.1
Shares
2011/12
$'000
Share of national
Share of output
15
Tas SA Vic Qld NSW WA 0
1 4 11 20 21 40
2011/12 11
15
Aust = 21%
22 14 52
40 40
60
80
100
120
10
20
30
40
10
20
30
40
50
60
Chart 3.
Chart 4.
Population
8 7 6 5 4 3 2 1 0 NSW Vic Qld WA SA Tas ACT NT
2.4 1.7 5.6
Dwelling commencements
60
mn
7.3
000
50
Australia: 22.7 million
4.6 Jun 2012
50.4 40.4 40.2 36.5 30.0
Australia 20yr avg: 154,100 2011/12: 142,300 20yr avg

27.3 20.6 9.7 8.8 2.5 2.2 1.4 1.3 2.8 4.4 17.8
40 30 20 10
2011/12
0.5
0.4
0.2
0 NSW Vic Qld SA WA Tas NT ACT
Industry mix: share of gross value add

Australia Agriculture Mining Manufacturing Construction Transport, utilities Wholesale, retail Health, social assistance Household services Finance Business services Public administration Ownership of dwellings 2.5 10.3 7.9 8.0 7.7 9.4 6.3 9.7 10.2 14.6 5.3 8.1 NSW 1.8 3.5 8.4 5.7 7.8 9.2 6.8 10.8 14.7 17.7 4.9 8.6 Vic 2.8 2.2 9.1 6.3 7.4 10.8 6.9 11.2 13.4 17.4 4.1 8.5 Qld 2.8 10.6 8.0 9.3 8.7 11.0 6.6 9.0 6.6 12.6 5.6 9.1 WA 1.6 36.3 5.4 12.4 6.8 6.6 3.6 5.7 3.8 9.6 2.7 5.6 SA 6.1 5.2 10.0 7.1 8.0 10.1 7.5 10.4 9.1 12.3 6.0 8.1 Tas 7.8 1.8 8.7 7.5 11.2 9.6 9.3 12.8 8.2 9.3 6.9 6.9 NT 2.8 19.9 7.0 12.9 5.1 5.1 6.0 8.7 3.2 9.5 8.7 11.1 ACT 0.1 0.1 1.4 10.2 4.8 4.4 5.7 13.4 4.2 15.6 32.9 7.3
Sources: ABS, Westpac Economics. For the 2011/12 financial year.
23
Forecasts: state activity and employment

2011/12 2012/13f 2013/14f
Govt f/cs
Australia * GDP Employment GSP Employment GSP Employment GSP Employment GSP Employment GSP Employment GSP Employment 3.4 1.1 2.4 0.6 2.3 0.8 4.0 1.2 2.1 0.5 6.7 3.7 0.5 1.1 3.0 0.8 2.00 0.75 2.00 0.50 3.75 0.25 1.75 0.00 6.00 3.25 1.00 0.25
Westpac
2.9 1.1 2.3 1.4 1.8 0.7 3.4 0.2 1.5 0.2 5.8 3.3 0.8 0.3
Govt f/cs
3.2 1.5 2.75 1.00 2.50 1.50 3.50 2.25 2.50 1.00 5.00 2.25 1.50 0.50
Westpac
2.4 0.8 2.6 0.9 2.0 0.6 2.6 0.9 1.7 0.5 3.4 1.4 1.1 0.3
NSW
Vic
Qld
SA
WA
Tasmania
* Government forecasts for Australia are a weighted average of the state government forecasts. State government forecasts from most recent state budget papers (December mid year updates) Westpac's state numbers are calculated to be consistent with the national forecasts.
Gross State Product

2004/05 NSW Vic Qld SA WA Tas NT 1.8 3.8 6.0 1.6 3.0 2.4 4.4 2005/06 2.1 2.1 5.6 1.5 4.9 2.4 3.3 2006/07 2.1 3.8 5.7 2.0 6.2 2.7 5.7 2007/08 2.9 3.5 4.8 5.8 3.9 2.9 7.0 2008/09 1.0 1.1 1.0 1.9 4.3 2.4 4.8 2009/10 2.0 1.9 1.4 1.0 4.3 0.1 1.2 2010/11 2.6 2.7 1.0 2.3 4.0 0.2 1.2 2011/12 2.4 2.3 4.0 2.1 6.7 0.5 4.4
Source: ABS. Note, estimates of GSP are only on an annual basis.
Employment
2004/05 NSW Vic Qld SA WA Tas
Source: ABS.
2005/06 2.0 2.3 4.0 2.5 5.5 3.4
2006/07 2.1 3.2 4.8 2.0 3.0 0.8
2007/08 2.9 3.2 3.0 2.1 4.1 2.9
2008/09 0.7 0.9 2.9 1.7 4.0 2.9
2009/10 0.9 2.5 0.6 0.9 0.2 1.7
2010/11 2.7 3.0 1.8 1.4 3.2 1.2
2011/12 0.6 0.8 1.2 0.5 3.7 1.1
1.2 3.1 5.4 1.6 4.1 2.5
24
Westpac Economics
Sydney Level 2, 275 Kent Street Sydney NSW 2000 Australia Telephone (612) 8254 8372 Facsimile (612) 8254 6934 Bill Evans Chief Economist Global Head of Economics & Research Andrew Hanlan Senior Economist Matthew Hassan Senior Economist Huw McKay Senior International Economist Justin Smirk Senior Economist Elliot Clarke Economist Auckland Takutai on the Square Level 8, 16 Takutai Square Auckland, New Zealand Telephone (649) 336 5671 Facsimile (649) 336 5672 Dominick Stephens Chief Economist, New Zealand Michael Gordon Senior Economist Felix Delbrck Senior Economist Nathan Penny Economist London Camomile Court, 23 Camomile St, London EC3A 7LL United Kingdom Telephone (4420) 7621 7061 Facsimile (4420) 7621 7527 James Shugg Senior Economist
Publication enquiries, Westpac Economics, Telephone (61-2) 8254 8720, economics@westpac.com.au 25
Disclaimer
Things you should know: If you are located in Australia, this material and access to this website is provided to you solely for your own use and in your capacity as a wholesale client of Westpac Institutional Bank being a division of Westpac Banking Corporation ABN 33 007 457 141 AFSL 233714 (Westpac). If you are located outside of Australia, this material and access to this website is provided to you as outlined below. This material and this website contains general commentary only and does not constitute investment advice. Certain types of transactions, including those involving futures, options and high yield securities give rise to substantial risk and are not suitable for all investors. We recommend that you seek your own independent legal or financial advice before proceeding with any investment decision. This information has been prepared without taking account of your objectives, financial situation or needs. This material and this website may contain material provided by third parties. While such material is published with the necessary permission none of Westpac or its related entities accepts any responsibility for the accuracy or completeness of any such material. Although we have made every effort to ensure the information is free from error, none of Westpac or its related entities warrants the accuracy, adequacy or completeness of the information, or otherwise endorse it in any way. Except where contrary to law, none of Westpac or its related entities intends by this notice to exclude liability for the information. The information is subject to change without notice and none of Westpac or its related entities is under any obligation to update the information or correct any inaccuracy which may become apparent at a later date. 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This information has been prepared without taking account of your objectives, financial situation or needs. Statements setting out a concise description of the characteristics of carbon units, Australian carbon credit units and eligible international emissions units (respectively) are available at www.cleanenergyregulator.gov.au, as mentioned in section 202 of the Clean Energy Act 2011, section 162 of the Carbon Credits (Carbon Farming Initiative) Act 2011 and section 61 of the Australian National Registry of Emissions Units Act 2011. You should consider each such statement in deciding whether to acquire, or to continue to hold, any carbon unit, Australian carbon credit unit or eligible international emissions unit. Additional information if you are located outside of Australia New Zealand: The current disclosure statement for the New Zealand division of Westpac Banking Corporation ABN 33 007 457 141 or Westpac New Zealand Limited can be obtained at the internet address www.westpac.co.nz. Westpac Institutional Bank products and services are provided by either Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (New Zealand division) or Westpac New Zealand Limited. For further information please refer to the Product Disclosure Statement (available from your Relationship Manager) for any product for which a Product Disclosure Statement is required, or applicable customer agreement. Download the Westpac NZ QFE Group Financial Advisers Act 2008 Disclosure Statement at www.westpac. co.nz. China, Hong Kong, Singapore and India: Westpac Singapore Branch holds a wholesale banking licence and is subject to supervision by the Monetary Authority of Singapore. 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In the same way, the information contained in this material and this website is intended for eligible counterparties and professional clients as defined by the rules of the Financial Services Authority and is not intended for retail clients. With this in mind, Westpac expressly prohibits you from passing on the information on this material and this website to any third party. In particular this material and this website, website content and, in each case, any copies thereof may not be taken, transmitted or distributed, directly or indirectly into any restricted jurisdiction.
26
Disclaimer continued
U.S.: Westpac operates in the United States of America as a federally licensed branch, regulated by the Office of the Comptroller of the Currency. Westpac is also registered with the US Commodity Futures Trading Commission (CFTC) as a Swap Dealer, but is neither registered as, or affiliated with, a Futures Commission Merchant registered with the US CFTC. Westpac Capital Markets, LLC (WCM), a wholly-owned subsidiary of Westpac, is a broker-dealer registered under the U.S. Securities Exchange Act of 1934 (the Exchange Act) and member of the Financial Industry Regulatory Authority (FINRA). This communication is provided for distribution to U.S. institutional investors in reliance on the exemption from registration provided by Rule 15a-6 under the Exchange Act and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors in the United States. WCM is the U.S. distributor of this communication and accepts responsibility for the contents of this communication. All disclaimers set out with respect to Westpac apply equally to WCM. If you would like to speak to someone regarding any security mentioned herein, please contact WCM on +1 212 389 1269. All disclaimers set out with respect to Westpac apply equally to WCM. Investing in any non-U.S. securities or related financial instruments mentioned in this communication may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the SEC in the United States. Information on such non-U.S. securities or related financial instruments may be limited. Non-U.S. companies may not subject to audit and reporting standards and regulatory requirements comparable to those in effect in the United States. The value of any investment or income from any securities or related derivative instruments denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related derivative instruments. The author of this communication is employed by Westpac and is not registered or qualified as a research analyst, representative, or associated person under the rules of FINRA, any other U.S. self-regulatory organisation, or the laws, rules or regulations of any State. Unless otherwise specifically stated, the views expressed herein are solely those of the author and may differ from the information, views or analysis expressed by Westpac and/or its affiliates. For the purposes of Regulation AC only: Each analyst whose name appears in this report certifies that (1) the views expressed in this report accurately reflect the personal views of the analyst about any and all of the subject companies and their securities and (2) no part of the compensation of the analyst was, is, or will be, directly or indirectly related to the specific views or recommendations in this report.
27
2013. A division of Westpac Banking Corporation ABN 33 007 457 141

Westpac Coast To Coast (March2013)

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Westpac Coast To Coast (March2013)

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Westpac Coast-to-Coast

An update on Australia's state economies

This issue was finalised on 22 March 2012

Westpac Coast-to-Coast March 2013

Australian economic outlook

Westpac Coast-to-Coast March 2013

Australian economic outlook

Australian economic conditions

Hours worked contract

GDP growth, average: 3.5%, 1998 to 2007 2.5%, 2008 to 2014

Sources: ABS, Westpac Economics

Sources: ABS; Westpac Economics

Labour market soft Hours worked contract

Australian growth mix

Housing & mining investment, share of GDP

contributions to GDP growth

Consumer* Mining inv.

0 Dec-88 Dec-92 Dec-96 Dec-00 Dec-04 Dec-08 Dec-12

Household savings rate

Business confidence & commercial finance

60 40 20 0 -20 -40 -60

Westpac Coast-to-Coast March 2013

4.6 2.2 1.9 2.4 3.5

Domestic demand growth

latest 6mths (annualised)

Growth: state government forecasts

3.4 2.9 2.4

Westpac Coast-to-Coast March 2013

State demand, contributions

State demand, contributions

Established house prices turn

Dwelling approvals, private

-20 Dec-08 Dec-00 Dec-08

50 Jan-11 Jan-07 Jan-11

Business investment: by state

Exports trend higher in NSW, Qld & WA

Sources: ABS, Westpac Economics

NSW + Vic WA + Qld

Westpac Coast-to-Coast March 2013

Consumers: a state view

Consumption per capita: by state

Labour income per capita: by state

-4 -4 Dec-88 Dec-91 Dec-94 Dec-97 Dec-00 Dec-03 Dec-06 Dec-09 Dec-12

Household savings rates: by state

Consumers unemployment expectations: by state

Consumers risk aversion: by state

200 180 160 140 120 100 80 60 0 30 60

60 Mar-06 Mar-08 Mar-10 Mar-12 Mar-06 Mar-08 Mar-10 Mar-12

-30 Mar-06 Mar-08 Mar-10 Mar-12 Mar-06 Mar-08 Mar-10 Mar-12

Source: Melbourne Institute, Westpac Economics

* index based on responses to wisest place for savings, smoothed

Westpac Coast-to-Coast March 2013

Housing: state update

Capital city dwelling prices

Auction activity: more convincing recovery

auction clearance rates

Sources: ABS, RP Data-Rismark, APM, Residex, Westpac Economics

Consumers: house price expectations

house prices, next 12mths Vic Qld SA WA

100 80 60 40 20 0 -20 -40

Dwelling approvals by state

180 160 140 120 100 80 60 40