So you think things aren’t that bad. You’re probably living in VicNSW, or even more likely, SydMel.
Outside of Victoria and NSW, and especially outside of Sydney and Melbourne, things are unpromising, and, just as happened in the lead-up to the US presidential election, the mainstream media here doesn’t quite get it. It’s housed in Sydney and Melbourne.
The Reserve Bank’s Christopher Kent put it diplomatically in a speech to business economists on Tuesday night: “In a country as large and diverse as Australia, the behaviour of the economy as a whole often misses important differences across the country.”
Gareth Aird of the Commonwealth Bank is more blunt. He’s the guy who coined the terms “VicNSW” and “SydMel”.
He says 57 per cent of the population lives in VicNSW (25 per cent in Victoria, 32 per cent in NSW). That means something approaching half of Australia’s population lives somewhere else. VicNSW accounts for 54 per cent of Australia’s economic activity, meaning roughly half of it takes place in places we don’t see as much of.
If you’re in VicNSW, your job prospects are pretty good. Employment is climbing at an annual pace of 2.2 per cent, well ahead of population growth of 1.6 per cent. But outside of VicNSW, jobs are vanishing at an annual rate of 0.8 per cent, at a time when the population in that half of the country is growing by 1.1 per cent.
In VicNSW the unemployment rate is steadily falling (it’s now down to 5.2 per cent) and in the rest of the country it’s stubbornly high, north of 6 per cent.
You might be about to remind me that in net terms all of the jobs created in the past year have been part time. Full-time employment has fallen.
That’s true, for Australia as a whole. But it isn’t true in VicNSW, where one-quarter of the new net jobs have been full-time, and it certainly isn’t true in Victoria, where in net terms they have almost all been full time. Kent reckons most of the collapse in full-time employment took place in just one state, Western Australia, where 49,000 full-time jobs vanished.
State final demand, which is the best measure of spending and investment in an economy, sank 7.3 per cent in Western Australia and 1.6 per cent in the half of Australia outside of VicNSW. Within VicNSW it grew an impressive 3.7 per cent.
Business investment collapsed 17 per cent in the rest of Australia. In VicNSW it grew 1.4 per cent. Much of the collapse was due to the winding up of mining investment, but in the rest of Australia non-mining investment fell too. By contrast in NSW non-mining investment has been growing 10 per cent per year, and it’s now growing in Victoria well.
It’s technically true to say that on a nationwide basis non-mining investment is weak, but as Kent pointed out on Tuesday, that is scarcely the point. In VicNSW non-mining investors have been prepared to spend more, “aided by favourable financing conditions and in response to strengthening demand”. In the rest of Australia they are not.
If you’re in SydMel, you know for a fact that home prices have been surging: they’re up 9.9 per cent in the past year, much more than wages at 2 per cent. But in the other capitals they are growing at a stately 3.9 per cent, much closer to wage growth, which is also near 2 per cent. Builders have got the message. In VicNSW building approvals have climbed 4.8 per cent in the past year. Everywhere else they have fallen 7.1 per cent.
But they mightn’t have fallen quickly enough. Kent’s fiddling with population and completion figures shows that in VicNSW one new home is being completed for every 2.6 new residents, which is about the standard: one home for every 2.6 people. But in Queensland it’s one new home for every 1.7 new residents, suggesting prices are going to have to slide to shift them. In Western Australia it’s far lower – an astounding one new house for every 1 new resident, suggesting an appalling oversupply. Kent says it’s having “a knock-on effect to other industries linked to the property market”.
How’s it playing on the ground? The latest election provides a clue. Of the four new One Nation senators, three were from outside VicNSW. Rough guesswork by Terry Rawnsley of SGS Economics Planning suggests that if the Reserve Bank had to pick the right cash rate to support the half of Australia outside of VicNSW it would pick something close to 0.5 per cent instead of present 1.5 per cent. To contain things in VicNSW it would need 2.5 per cent.
The concept of “two Australias” isn’t new, but those of us in VicNSW are less aware of it than we were back at the peak of the mining boom when it was QldWA versus the rest. The half of Australia outside of VicNSW is doing much worse than we are and might even be resentful. It’d be wise to look around.
Peter Martin is economics editor of The Age.