Transitioning Regional Economies

1 About this study

The Australian Government asked the Commission to undertake a study into the geographical impacts of the transition of the Australian economy following the resources investment boom.

The mining investment boom (from about 2005 to 2013) provided widespread benefits for the economy, workers, business owners, communities and governments. By 2013, it was estimated that the resources boom had raised average real wages by 6 per cent, raised real per capita household disposable income by 13 per cent and lowered the unemployment rate by about 1.25 percentage points (Downes, Hanslow and Tulip 2014, p. 1).

The mining investment boom was driven by a rapid increase in demand for commodities and a dramatic increase in the price of Australia’s mining exports. This price rise is reflected in the nonrural commodity price index (figure 1.1). The index increased by over 300 per cent from the average of the early 2000s to the peak in 2011. As can be seen in figure 1.1, the terms of trade followed a similar pattern to commodity prices, rising dramatically from the mid2000s and peaking in late 2011. The increase in the terms of trade enabled Australia to buy more imports for a given quantity of exports and thereby increased domestic real income. The resources sector responded to the price increase by expanding its production capacity. Investment in the mining industry increased from an average of about 2 per cent of GDP before the boom and peaked at just under 8 per cent in 2012.

Commodity prices fell considerably from the peak in 2011 but have since recovered from their lows in 2014 and now remain above the average for the 1980s and 1990s (figure 1.1). Meanwhile, investment in the mining sector has, as expected, declined as the industry has been transitioning from the investment phase to the production phase. As a result, employment in the sector has decreased and wage growth has slowed. Compared with before the boom, the mining sector has experienced a sustained increase in the value of exports (figure 1.2), in production levels, and in employment (which has more than doubled). As the Department of Regional Development (WA) noted:

Despite the fall in investment over recent years, the resources industry remains a significant contributor to the State and the national economy. (sub. 27, p. 3)

Figure 1.1 A larger than usual commodity cycle

Sources: ABS (Australian National Accounts: National Income, Expenditure and Product, Dec 2016, Cat. no. 5206.0); RBA (2017).

Figure 1.2 Quarterly export values December 1996 to June 2017

Source: ABS (Balance of Payments and International Investment Position, Australia, Jun 2017, Cat. no. 5302.0).

A similar sentiment was expressed by the Queensland Resources Council.

The medium to long term demand fundamentals for Queensland’s resource commodities remains strong, so the resource industry will remain an engine for growth in many regional economies in Queensland for decades to come. The resource sector’s expansion in Queensland over the past decade is unprecedented and even though many sectors are adjusting to the current global oversupply of many commodities, the resources industry in Queensland continues to generate substantial numbers of regional jobs, widespread regional economic activity and royalties for the State. (sub. 16, pp. 1–2)

The resources sector is now a larger sector (and share) of the Australian economy compared with before the boom.

The economic cycle has been significant and has had varying impacts across different geographic regions of Australia. During the boom, economic activity was particularly strong in Western Australia and Queensland. For example, in Western Australia, annual economic growth peaked at 9.4 per cent in 201112, with business investment accounting for a significant share of the growth. Following the end of the investment phase, economic growth in Western Australia slowed and gross state product declined by 2.7 per cent in 201617, after growing, on average, by about 5 per cent per year in the previous decade (ABS 2017c). Unemployment has also been trending up. On average in the year to October 2017, 86 000 people were unemployed compared with about 37 000 on average during 2008 (ABS 2017h). Recent employment data suggest conditions have stabilised, with employment in Western Australia growing only slightly more slowly than the Australian rate in the past year. Similarly, Queensland experienced unprecedented levels of construction expenditure during the boom (approximately $36.6 billion in 201314), which have subsequently decreased by about 70 per cent (Queensland Government, sub. 26, p. 20).