Standstill economy set to sprint: report

Deloitte Access Business Outlook report backs up Treasury growth forecasts, with mining tipped to lead the long-awaited recovery

Standstill economy set to sprint: report
Business outlook points to Qld recovery, says Fraser

July 25, 2011

An investment surge in Queensland’s thriving mining sector will help the State bounce back from a tough two years, according to Treasurer Andrew Fraser.

He says the June quarter Deloitte Access Business Outlook report, out today, backs up Treasury forecasts.

Access has forecast growth in Queensland for this financial year to be 5.6 percent - well above the national forecast of 3.5 percent.

It goes on to say the economy will accelerate "from a standing start, reaching a sprint inside the next six months".

"It also makes other relevant points - Queensland was the state hit hardest by the GFC, it's still difficult to access private finance for construction, and that this Government has correctly focused on delivering the infrastructure needed for the longer term," Fraser says.

As Queensland’s prospects continue to look more promising, forecasters are dialling down estimates for advanced economy growth following a surge in commodity prices and Japan’s devastating earthquake.

However, Deloitte Partner Chris Richardson says fears are overblown and insists a global recovery is continuing.

China and India are starting to cool, but their slowdown, like the associated lift in their interest rates, is modest.

With developed economies doing better than expected and emerging economies only throttling back a bit, the upshot is continued above trend global growth this year and next.

Turning to Australia, Richardson highlights how tough it is out there for many families and businesses.

He says the country is experiencing a cut back in consumer spending and stimulus as well as a slowdown in housing construction.

"That means Australian growth prospects are very narrowly based. Total capex (capital expenditure) – including the public sector and housing - will account for almost all Australia’s 2011-12 growth.

"Business capex alone should account for almost two-thirds of our growth. That’s tough to do, but achievable."

The world is desperate for Australia to grow faster, in Richardson’s view, with the resources boom generating job opportunities in more sectors and more states.

But while demand is there, supply is not - migrant numbers are slumping and the pace of retirement is rising.

"Job gains are starting to slow, partly due to the ‘two speed economy’ negatives, but now also due to a lack of workers as mismatches between job demand and worker supply become more evident," Richardson says.

"That’s why you can now earn more flipping burgers in Karratha than you can being a GP. That is why participation – the willingness to work – has become a vital variable," he says.

In turn, the pressure from high exchange and interest rates is making life extremely uncomfortable in much of manufacturing, as well as tourism, parts of education, retailing and farming, according to Deloitte.

"As the straightjacket on skilled workers is tightened over the next two years, many of these sectors will also find they face unwelcome wage pressure from mining and construction," it says in today's report.

Handing down Deloitte’s Queensland Index results last week, Richardson indicated that Queensland’s growth spurt will start with its huge repair task which will offset the interest rates and high Australian dollar’s negative impact on the tourism industry.

However, he says the "true" driver of growth in Queensland over the next couple of years will be a surge of project work centred on the rich mineral arc from Gladstone to Townsville.

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