One third of Australian locations “in recession”: report

Growth in the Australian economy is concentrated in a small number of inner-city and resource-rich locations, while 35% of locations are effectively in recession, according to research from PwC released today.

While overall the Australian economy grew by 2.5% in the last financial year, this growth is being generated by less than 0.5% of the economy, according to the unpublished data provided to SmartCompany by PwC.

Mapping growth patterns for the past 14 years, PwC found the central business districts of Melbourne and Sydney and the Ashburton and East Pilbara regions of Western Australia are the top four regions generating economic growth for Australia.

Also in the top 10 are the central business districts of Perth and Brisbane, Pyrmont-Ultimo and Macquarie Park-Marsfield in New South Wales, and Adelaide.

The PwC data, which is based on the economic output of 2214 locations across Australia over a period of 14 years, found these 10 locations generated nearly $1 in every $5 of Australia’s national income.

But at the other end of the scale are regions such as Nanango in Queensland and Churchill in the Latrobe Valley in Victoria, regions reliant on coal production, which are contracting in terms of economic growth. Nanango’s contribution to the economy has contracted by 61%, while the Latrobe Valley’s has shrunk by 21%.

Other regions falling to the bottom of the list include Moe-Newborough, also in the Latrobe Valley; Condell Park in Sydney; Wetherill Park Industrial in Sydney; Mount Gravatt in Brisbane; Sunnybank in Brisbane; West Footscray-Tottenham in Melbourne; Deniliquin in rural New South Wales and Cairns.

Overall, PwC said one in three locations analysed had economies that contracted in 2014.

PwC predicts the concentration of economic growth in Australia will only intensify, with nothing to suggest the trend will slow or be reversed. In fact, PwC predicts continuing decline in the resources and manufacturing sectors means further locations could contract.

“Grappling with this reality will become one of the most challenging questions facing business and government, explaining patchy policy, investments and business performance across Australia,” PwC said.

Stephen Koukoulas, managing director of Market Economics, told SmartCompany the fact that some parts of the Australian economy are performing well, and others are not, is nothing new.

“We know the national figure and we know some industries are very strong and some are weak,” Koukoulas says.

At a microeconomic level, Koukoulas says this can be thought of as what happens when a particular project, for example a mining project, finishes. Or in the case of individuals, an individual’s economic output can also contract if they lose their job.

But Koukoulas says it would be a worrying sign if a region or location is “perpetually weak”.

In those instances, it becomes a question for governments at local, state and federal levels to consider.

HSBC chief economist Paul Bloxham told SmartCompany it is important to keep in mind the Australian economy has “always had a large amount of divergence”.

“It’s always the case that some sectors are in an upswing, while some are in a downswing,” Bloxham says.

“That reality has been with us for a long time.”

But Bloxham says it is certainly the case that there has been “more divergence in recent years than in the past”. He says in part that can be explained by both the ramp-up and downswing in mining activity.

“At the height of the mining boom in 2011-12, the sectors of the economy most exposed to the mining boom were very strong, but other parts were much weaker.”

“Now we are seeing non-mining led growth supporting the sectors least exposed to mining.”

For small Australian businesses, Bloxham says this data shows how important it is to be “very forward-looking” as to where the next opportunities for growth will come from.

“We believe the service sector will be the next driver of growth,” he says.

“Tourism is in an upswing, educational exports are increasing, business services are showing signs of employment growth, professional services are growing.”