hunter economic update - may 2015
TRANSCRIPT
PRESENTATION OUTLINE
• ‘Pulse check’ of the local economy
– Still trying to rebalance away from mining
– Unemployment remains high
• Future opportunities and threats
– Free trade agreements
– The need to ‘think global, act local’
• Future of Professional Services
– SWOT analysis of three sectors:
• Financial services
• Legal, HR and real estate
• Engineering & technical services
HUNTER ECONOMY’S PERFORMANCE
• Still feeling the effects of
end of mining boom
– Unemployment remains high
– Weak business confidence
• (Weak) green shoots exist
– Lower A$: boosts our exporters
– Record low interest rates (good for borrowers)
– Low petrol prices: boost for consumers (e.g. households)
• Improving household confidence
– But will it translate into higher spending?
UNEMPLOYMENT
Hunter economy remains highly reliant on mining industry
CONTINUES TO RISE
0
5
10
15
20
0
5
10
15
20
Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan
Unemployment rates (%)
Hunter Youth
Hunter
Source: ABS
NSW
2010 2011 2012 2013 2014 2015
ECONOMIC CHILLS
0
2
4
6
8
10
0
2
4
6
8
10
2011 2012 2013 2014 2015 2016
Growth in real GDP (% p.a.)
?
Australia
Dec 2014
forecast
April 2015
forecast
WHEN CHINA SNEEZES WE…?ECONOMIC GROWTH: COOLING
0
2
4
6
8
10
0
2
4
6
8
10
2011 2012 2013 2014 2015 2016
Growth in real GDP (% p.a.)
China
Australia
Dec 2014
forecast
April 2015
forecast
INTEREST RATES
50% chance of another cut by end-2015
HOW LOW CAN THEY GO?
0.0
0.2
0.4
0.6
0.8
1.0
1.2
0
0.5
1
1.5
2
2.5
3
Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar
Likelihood of lower interest ratesThree months ahead
Chance of 0.25% fall
(RHS)
Cash rate (LHS)
2012 2013 2014 2015
Within two hours of here….
HOUSE PRICES IN…?
90
100
110
120
130
140
90
100
110
120
130
140
Jun Dec Jun Dec Jun Dec Jun Dec Jun
Two (three?) speed housing markets
June 2011=100
2011 2012 2013 2014 2015
Hunter Balance: Impacted by mining slowdown
HOUSE PRICES CLOSE TO HOME
90
100
110
120
130
140
90
100
110
120
130
140
Jun Dec Jun Dec Jun Dec Jun Dec Jun
Median house prices
2011 2012 2013 2014 2015
Lake Macquarie
LGA
Newcastle
LGA
Hunter Balance
Sydney Metro
BOOSTED BY LOW INTEREST RATES
BUILDING ON SHAKY GROUND
Clue: nothing’s as safe as…
1000
2000
3000
4000
5000
20000
30000
40000
50000
60000
Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar
Number of …?
Source: ABS
NSW
(LHS)
Hunter
(RHS)
2010 2011 2012 2013 2014 2015
SYDNEY VS THE HUNTER
Less of a growth driver locally, due to high unemployment
1000
2000
3000
4000
5000
20000
30000
40000
50000
60000
Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar
Number of dwelling approvals (per annum)
Source: ABS
NSW
(LHS)
Hunter
(RHS)
2010 2011 2012 2013 2014 2015
SOMETHING TO DWELL ON
ECONOMIC OUTLOOK
Household confidence boosters: low interest rates and petrol prices
DIVERGING EXPECTATIONS
-0.2
-0.1
0
0.1
0.2
0.3
0.4
-0.2
-0.1
0
0.1
0.2
0.3
0.4
Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar
Economic outlook for the Hunter Next 12 months
Source: HRF
>0: improving, <0: worsening
Businesses
Households
2010 2011 2012 2013 2014 2015
MAY 2015 BUDGET
• What are its broad aims?
– Increase workforce
participation
– Boost employment and
investment
• Enabling policies– ‘Carrots’ for working mums; ‘sticks’ to stay-at-home
– Incentives to hire over-50s and under-25s
– Tax cut for SMEs; accelerated depreciation
• Are the policies a remedy for the current situation?
– Economy has excess labour supply, not labour demand
– Lack of sales is the major constraint….not higher taxes
– Lack of demand-boosting policies
ECONOMIC STRATEGY
SUMMING UP
• Suffering from the end of the
mining investment boom
– Unemployment remains high
– Weak business confidence
• (Weak) green shoots exist!
– Lower A$: boosts our exporters
– Record low interest rates (good for borrowers)
– Low petrol prices: boost for consumers (e.g. households)
• Improving household confidence
– May not lead to higher spending until unemployment falls
• Is the budget a remedy in the short-term? Unlikely
‘PULSE CHECK’ OF LOCAL ECONOMY
CONTEXTECONOMIC TRANSITIONS
• From high value mining to
lower value services:
– Australia-wide issue
– Transition can’t be avoided
– How to maintain the growth
during the mining boom?
• Services are not equally value-adding
– Professional services are highest value creators
– Finance; legal; HR; real-estate; and scientific services
• Global competition: an opportunity and a threat
– Competition will be spurred by recent FTAs
COMPARATIVE
ADVANTAGESWHERE DO OUR OPPORTUNITIES LIE?
• Comparative advantages:
– Energy (e.g. renewables)
– ‘Agritourism’, Wine, Equine
– Advanced manufacturing
• What are our comparative disadvantages?
– Unskilled, cheap labour• Mass production
• Standardised manufacturing
– Our high (labour) costs resemble the Germans & Swiss
‘THINK GLOBAL, ACT LOCAL’MORE NEEDED TO ENABLE THIS SHIFT IN MINDSET
0%
10%
20%
30%
40%
50%
60%
0%
10%
20%
30%
40%
50%
60%
Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar
Hunter businesses exporting (%)
Source: HRF
To other nations
To the rest of Australia
2010 2011 2012 2013 2014 2015
HRF’s quarterly surveys: a unique Regional asset
PROFESSIONAL SERVICES INDUSTRIES
5%
7%
9%
11%
13%
15%
17%
5%
7%
9%
11%
13%
15%
17%
2002 2004 2006 2008 2010 2012 2014
NSW
Australia
Hunter
Mining downturn; more competition
A LOWER SHARE OF EMPLOYMENT IN THE HUNTER
‘TRADABILITY’ OF SERVICESLOW….BUT INCREASING
0%
50%
100%
150%
200%
Professional
Services*
Education &
Training
Manufacturing Mining
International tradability of Australian industries
* Finance & insurance services; HR, real-estate and legal services; and scientific & technical services
• What are the opportunities?
– Technology adoption
– Collaboration (are existing networks effective?)
– Export-oriented
• What are the constraints?
– Is lack of existing scale a barrier? How important are
economies of scale?
– Access to the right skills (especially in regional context)
– Funding/cashflow constraints for investment
HUNTER’S PROFESSIONAL
SERVICESRESEARCH QUESTIONS ADDRESSED
LESSONS LEARNTSTRATEGIC THINKING MUST
BE TOP OF MIND
• Manufacturing Our Future project
– What differentiates improving from
declining firms?
• What is the recipe for success?
– Formal strategic business planning
– Connect with global supply chains and networks
– Focus on high-value segments of the supply chain
– Innovative work processes and practices
– Culture change (less risk averse; globally-focused)
• ‘Ingredients’ also apply to professional services
CARPE FUTURUM!
• Hunter’s economic pulse is currently weak
• How can we remain economically vibrant?
– ‘Think global, act local’
– Focus on our comparative advantages
– What would John
Keating say?
LET’S MAKE OUR ECONOMY EXTRAORDINARY!
Source: http://theproactiveprofessional.com/tag/dead-poets-society/