Driving the Queensland Economy

The dashboard’s key indicators show that the Queensland economy is performing reasonably well. Total economic growth was slow in 2014-15, although given the large adjustments occurring, the avoidance of an economic contraction is testament to the economy’s resilience and diversity. With a supportive but unchanged monetary policy settings and fiscal policy directed at returning to surplus, the heavy lifting has come from the exchange rate. It shows the power and importance of flexible markets in adjusting to economic change.

Inflation in Queensland is only a little below Australia’s medium term target of 2-3%, indicating some spare capacity in the economy and also reflecting a large fall in oil prices over the past 12 months. In addition, the unemployment rate is within a reasonable range and, importantly, has fallen over the past 12 months.

Looking at the components of the economy, we can see that the reduction in business investment was the greatest negative force on the economy in 2014-15, partly reversing the huge growth from this component in previous years. Meanwhile, both net exports and dwelling investment have contributed to the expansion of the economy in the past two years.

Looking to the future, what is likely to drive growth? Net exports should continue to contribute to growth as our lower exchange rate benefits goods and services exporters. In the short term, production is largely locked in so our profitability will be primarily dictated by developments in the international economy and the resulting demand for our goods and services.

Dwelling investment is also likely to continue its contribution to economic growth, as seen by the steady increase in building permits. Nevertheless, dwelling investment accounts for only 5% of the economy and will not be a large source of growth.

The largest source of growth is likely to be from household consumption expenditure. Household consumption accounts for 58% of the Queensland economy, encompassing everything from purchases of food and household goods to health services, education and holidays.

In 2014-15, a moderate increase in household consumption contributed three times more to total economic growth than a strong increase in dwelling investment.

Households are more inclined to consume if they are wealthier or have more income. Therefore, increases in house and stock prices and decreases in the unemployment rate will encourage growth in household consumption. The Australian stock market has fallen this year and dwelling prices are mixed across the state. An improvement in labour market conditions is needed to promote steady growth in household consumption.