Sydney’s resurgent economy contributed nearly a third of Australia’s growth in the last financial year as most other cities and regions struggled in the wake of the mining boom.
Analysis of the economic performance of Australia’s cities and regions has revealed a wide variation in conditions. While the nation’s two biggest cities are powering ahead, GDP growth per person fell across much of the country.
The report by, SGS Economics and Planning, found the Sydney economy grew by 3 per cent in 2014-15 to $378 billion – 23.3 per cent of gross national product. The financial services sector was Sydney’s strongest performing industry followed by media and telecommunications, construction, retail and real estate services.
“Sydney’s role as a global financial hub has allowed it to tap into the benefits of stimulus programs undertaken by central banks around the world,” the report’s author, economist Terry Rawnsley, said. “While driven by financial services its growth was broad based with a range of industries contributing to growth.”
Sydney was also the most productive of Australia’s capital cities with gross value added per hour worked about 7 per cent higher than the national average. The Sydney economy had a long period of sluggish growth last decade but has now “outperformed the rest of the country” for the last three years.
Sydney accounted for 30.3 per cent of Australia’s gross domestic product growth in 2014-15 after contributing 37.9 per cent the previous financial year.
“This just shows the importance of Sydney to the national economy,” Mr Rawnsley said.
Melbourne’s economy grew by 3.1 per cent in 2014-15 to $284 billion – 17.7 per cent of gross national product. Sydney and Melbourne together contributed 54.3 per cent of Australia’s GDP growth in 2014-15.
But the report also showed half of Australia’s population were living in regions with falling income per capita.
The Perth economy has been hit especially hard in the aftermath of the mining boom. Its growth rate slumped to just 0.3 per cent in 2014-15, the lowest mark since the recession of 1991. Brisbane’s growth rate was 0.9 per cent in the year, the third lowest on record. GDP per capita fell in regional NSW, regional Victoria, all of Queensland, regional South Australia and Perth in the last financial year.
“This is a reason why consumer and business confidence has been so weak,” Mr Rawnsley said.
To highlight the economic divergence, the report created a hypothetical situation where each region has its own central bank setting local interest rates. It concluded Sydney would have had the highest interest rate last year of 3.5 per cent, well above the actual Reserve Bank cash rate of 2 per cent. A Reserve Bank of Melbourne would have set rates at 2 per cent. Perth would have seen interest rates cut from 2.5 per cent in 2012-13 to 1.25 per cent in 2014-15. Over the same time the Reserve Bank of Brisbane would have cut rates by 1.5 percentage points to 1 per cent.
Mr Rawnsley said the large divergence in regional growth was a challenge for the Reserve Bank. “The RBA has to manage booming economies in Sydney and Melbourne while the rest of the country is struggling to grow in the face of a range of headwinds,” he said.
While Sydney’s economy has been performing well there is some uncertainty about the outlook. The size of Sydney’s financial sector means the city is more exposed to global financial conditions than other parts of the country so the recent turmoil on share markets could drag on growth. Sydney’s economy may also be affected by the cooling housing market.