SEGRA 2012: The outlook –

and its regional

implications Chris Richardson

Deloitte Access Economics

20 November 2012

The big picture

• The rise of Asia has already been a big benefit to

Australia. But – thanks to the associated strength in

exchange and interest rates – that benefit has been

more obvious in mining regions, and rather less so for

farm- and tourism-dependent parts of this nation.

• The next phase of Asia’s development should

even out some of those bumps. Slower

construction in mining regions will take pressure off

there. And interest rates and the $A should ease.

• Finally, Asia’s demand growth will start to swing

towards (such as protein rich foods) to services (such

as education, tourism and financial services).

Oz – the underlying story remains beautiful

0% 1% 2% 3% 4% 5% 6% 7% 8%

Italy

Japan

Germany

France

United Kingdom

New Zealand

United States

Australia

Korea

Singapore

Taiwan

Thailand

Philippines

Indonesia

China

India

Projected average annual output growth: 2012 - 2022

Yet China has slowed & iron ore prices down

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12

$A high for a time further, though not forever

0.50

0.60

0.70

0.80

0.90

1.00

1.10

0

10

20

30

40

50

60

70

80

90

100

110

120

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

The exchange rate and commodity prices

World commodity export prices (index) $US per $A (RH axis)

Still some downside in interest rates

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Australian interest rates

Standard variable mortgage rates

Sectoral output growth 2012-13

Source: Deloitte Access Economics

-4% -2% 0% 2% 4% 6% 8%

Farm

Public administration

Manufacturing

Utilities

Transport & storage

Wholesale and retail trade

Recreational services

Finance and insurance

Property services

Education

Information services

Business services

Health

Construction

Mining

% change in output 2012-13

State output growth 2012-13

Source: Deloitte Access Economics

0% 2% 4% 6%

Tas

SA

ACT

Vic

NSW

Australia

NT

QLD

WA

% change in output - 2012-13

North West of Brisbane Line

20% of employment

53% of investment projects

South East of Brisbane Line:

80% of employment

47% of investment projects

The Brisbane Line – the skewing of

Australian investment

Source: Deloitte Access Economics, Investment Monitor, December 2011

16%

18%

20%

22%

24%

2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

Real business investment to GDP

Real exports to GDP

Capex & exports key to ‘seizing the moment’

Is ‘the boom’ over? That depends on whether

you measure it by prices (yes, though they’ll

remain good), construction (set to peak in 2014),

or export volumes (where much of the dividend

is yet to be felt, and will last for decades)

The regional population share

has held up since the early 1970s

0%

10%

20%

30%

40%

50%

60%

1921 1931 1941 1951 1961 1971 1981 1991 2001 2011

Regional share of total Australian population

Though that hides some distinct cycles –

including some current tough times

-3%

-2%

-1%

0%

1%

1921 1931 1941 1951 1961 1971 1981 1991 2001 2011

Regions doing well

Regions doing poorly

Population growth in regional Australia less growth in the 8 capitals

Albeit with different stories State by State

-3%

-2%

-1%

0%

1%

2%

1921 1931 1941 1951 1961 1971 1981 1991 2001 2011

Australia

NSW

Regions doing well

Regions doing poorly

Population growth in regional Australia less growth in the 8 capitals

And within States, we’re moving from bush to

beach – creating regional winners and losers

Since the mid-1970s there has been a sharp move to the national coastline.

Driven by lifestyle choices, Australia is seeing a population shift from the bush to the beach.

That spells success for some regional areas, while others have and will face serious decline.

‒The commodity price boom boosted the $A,

while the construction boom boosted our

interest rates.

But exchange and interest rates will ease in

coming years:

‒The ability of Australian businesses to sell into

world markets (or to protect themselves against

imports) will be bolstered by a relative easing in

interest and exchange rates.

‒These will fall over time alongside industrial

commodity prices, increasing the opportunities

available.

What will change?

‒The rise of Asia saw an initial shift into a

‘commodity hungry’ phase: Australia was able

to benefit greatly from that.

‒But what will drive growth in coming decades?

‒The next phase of Asia’s rise will spawn

massive markets in everything from goods

(such as protein rich foods) to services (such

as education, tourism and financial services).

‒That’s a big bunch of opportunities, but

Australia’s comparative advantage will be less

dramatic than it was in resources – that is,

challenges will be greater.

The next opportunities

The new story: farm recovery?

But Australia’s ‘people power’ is falling short

40

60

80

100

120

140

0.0

0.4

0.8

1.2

1.6

2.0

1950 1960 1970 1980 1990 2000 2010

Migrants as a share of population (LH axis) Terms of Trade (RH axis)

% of Australia's population Index (2009-10 = 100)

Gold watch time

40

60

80

100

1971 1981 1991 2001 2011 2021

Ratio of those turning 18 to those turning 65 years (%)

Forecast

Did I mention the beautiful story?

0% 1% 2% 3% 4% 5% 6% 7% 8%

Italy

Japan

Germany

France

United Kingdom

New Zealand

United States

Australia

Korea

Singapore

Taiwan

Thailand

Philippines

Indonesia

China

India

Projected average annual output growth: 2012 - 2022

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