Academic journal article Journal of Australian Political Economy

Australia's 'Two-Speed Economy'

Academic journal article Journal of Australian Political Economy

Australia's 'Two-Speed Economy'

Article excerpt

The global economy, and particularly the advanced industrial nations, experienced one of the largest downturns in modern history with the onset of the Global Financial Crisis (GFC) in 2008-2009. In contrast, the Australian economy fared relatively well. The author examined the situation in late 2009, writing an article for this journal that discussed 'the dual economy' that emerged in the Australian economy in this period (Perlich, 2009). This showed that the faster growing state economies were focused on mining exports following the GFC, while the slower growing state economies were associated with more traditional key sectors such as manufacturing, finance and tourism. The aftermath of the GFC on the Australian economy is revisited here, with an update analysis to the end of 2012, when the mining boom had significantly flattened.

The analysis undertaken in 2009 focused on the four largest economies of Australia, in terms of GDP and population. This focus is reiterated here. The state economies are Western Australia (WA) and Queensland, characterised as the 'resource' states, while New South Wales (NSW) and Victoria are broadly characterised as the 'non-resource' or 'manufacturing' states. Tasmania and South Australia are significant regional economies too, with the latter having had a relatively strong role in manufacturing, but our focus here is on the big four. Combined, NSW, Victoria, Queensland and WA contain 88 per cent of Australia's population (ABS, 2013a) and produce around 90 per cent of Australia's GDP (ABS, 2013b).

The expression 'two-tier' economy that was used in the 2009 article has been revised to 'two-speed' in this article. Various expressions of this sort may be used to describe the Australian economy over this period. Indeed, some authors have argued that 'three-speed' is more appropriate (Corden, 2011). The semantics are less relevant, however, than to acknowledge that the Australian economy has experienced a range of primary and secondary impacts subsequent to the GFC. Although 'speed' is not the only criterion of success and failure, the article argues that the mining boom in the post-GFC period has distorted the growth and distribution of wealth in the Australian economy, with contrasting benefits and disadvantages. These uneven benefits and disadvantages have occurred across different states, employment sectors and industries.

State Economic Performance Indicators

The emergence of Australia's contemporary two-speed economy occurred around the end of 2004. In the period since then, Western Australia has consistently been the strongest of the four large state economies (as shown in Figure 1 on the next page). Average annual growth in State Final Demand (SFD) for WA was very high at 8.2 per cent for the period from March 2005 to December 2012 (ABS, 2013b). Queensland average annual SFD growth was also high at 4.8 per cent. Victoria's average was lower at around 3.0 per cent, while NSW came last at around 2.7 per cent.

In 2007, the collapse of banks and trouble in the financial sectors of key advanced economies brought a cloud of pessimism and contraction in the global economy. At the end of 2007 both of Australia's 'resource states' experienced the start of a sharp downturn in SFD growth. A distinct difference then emerged in 2009 between the performance of WA and Queensland. WA growth revived even as the Queensland economy contracted, to the point of becoming the weakest performing state of the four analysed by the end of 2009. SFD in both NSW and Victoria rebounded during 2010, outperforming Queensland and even briefly WA. This pattern was short-lived, however. The WA economy began to boom again in 2011. Queensland SFD also recovered rapidly, despite facing a disastrous flood in early 2011.

By the end of 2011 the two-speed differential between the 'resource states' and the 'manufacturing states' was firmly re-established. However, WA was clearly the best performing state economy. …

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