Australia / Coronavirus Insights
State of Play: COVID-19 Influence on State Economies

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by IBISWorld
Jul 29 2020

The Australian economy continues to be hindered by the ongoing COVID-19 pandemic. Real GDP declined by 0.25% in 2019-20, and is expected to decline by a further 2.5% in 2020-21. The unemployment rate has risen from 5.1% in February 2020, to 7.4% in June 2020. When including workers currently on JobKeeper, working no hours, or having exited the workforce entirely, the underlying effective unemployment rate may be as high as 11%. The federal budget deficit has blown out to an estimated $85.8 billion in 2019-20 and $184.5 billion in 2020-21. Federal stimulus policies have totalled $289 billion, equivalent to 14.6% of 2019-20 GDP.

The performance of state economies has been mixed. Some states have achieved a near elimination of COVID-19, such as Tasmania, Queensland and South Australia. These states have been able to resume normal economic activities, but have been hindered by the ongoing requirement to maintain closed borders with other states. New South Wales and Western Australia have demonstrated an ability to partially resume economic activity while controlling small outbreaks of COVID-19. The second wave of cases in Victoria has demonstrated the risk of resuming economic activity while community transmission of COVID-19 persists.

Victoria

The headline rate of unemployment for Victoria was 7.5% in June 2020, and is expected to peak at 9.0% in the September quarter. The unemployment rate in Victoria has risen from 5.3% in February 2020 to an effective rate of 9.8% in June 2020, including those who have left the workforce entirely. The effective rate of unemployment has risen significantly in July, as the state returned to stage three lockdown restrictions. According to the state government, the headline rate of unemployment is expected to peak at 9.0% in the September quarter, representing 200,000 job losses.

Victoria is expected to record a budget deficit of $7.5 billion in 2019-20, down from a $618 million surplus originally anticipated for the year. This deficit is the first recorded in almost 30 years.

Stage 3 Stay at Home restrictions were in place from 30 March to 12 May, and have resumed for metropolitan Melbourne and Mitchell Shire from 9 July to at least 20 August. The current lockdown period of six weeks is expected to be extended following a significant rise in COVID-19 cases. Real gross state product is expected to decline by 5.25% in 2020, and rebound by 6.25% in 2021.

The return to Stage 3 Stay at Home restrictions for Victoria has been particularly damaging to its largest economic contributors, wholesale and retail trade. Disrupted industries include Restaurants, Hotels and Resorts, and Catering Services. Victorian retail trade rebounded by 17.2% in May 2020, following a decline of 21.1% in April 2020. However, retail trade fell again in June and July, following the return of Stage 3 Stay at Home restrictions.

The only economic division in Victoria that has increased employment since March 2020 is Electricity, Gas, Water and Waste Services, which has increased employment by 3.3%. The recovery of employment in Victoria has lagged behind the national average since April 2020.

New South Wales

Unemployment in New South Wales has risen from 4.6% in February 2020, to 6.9% in June 2020. The state government expects the Gross State Product (GSP) to decline by as much as 10% in the second half of 2019-20, with unemployment rising to 7.75% and state taxation revenue falling $20.3 billion below prior forecasts. New South Wales has postponed passing its annual state budget amid the disruption of the COVID-19 pandemic.

Retail trade in New South Wales fell by 17.5% in April 2020, before recovering by 16.5% in May 2020. According to preliminary estimates from the ABS, the recovery has continued for Cafes, Fast Food and Takeaway Food Services and Personal Accessory Retailing. However, revenue for Department Stores is expected to have fallen since May 2020.

Total retail trade is expected to remain below the levels exhibited in 2019 throughout 2020. Employment in New South Wales was at its lowest in the week of 18 April, and recovered through to a peak on 20 June. However, both employment and wages have since declined through to July, due to the closure of the VIC-NSW border and the return of some social distancing restrictions. These restrictions include limits on the number of indoor patrons allowed at a venue, and restricted attendance at weddings, funerals and churches.

Over 290,600 businesses in New South Wales have received JobKeeper wage subsidy support from the Federal Government, representing 32.1% of all eligible businesses in the state. While New South Wales has continued to struggle with community transmission of COVID-19, it has yet to experience the uncontrolled and exponential spread seen in Victoria. New South Wales has currently opted against returning to significant lockdown restrictions.

The NSW-VIC border closed on 8 July. Queensland will close its borders to all travellers from the Greater Sydney region from 1 August, in response to the continued spread of COVID-19 in New South Wales.

Queensland

Queensland has been relatively successful in rebounding from the COVID-19 pandemic. Both wages and employment have recovered at a faster rate than the national average. According to the Queensland Treasury, the COVID-19 outbreak has contributed to a $16.7 billion increase in Queensland’s debt. Queensland is expected to have a budget deficit of close to $5.9 billion for the 2019-20 financial year, which will rise to $8.4 billion in 2020-21. Overall, Queensland’s debt is expected to surpass $100 billion by June 2021, representing the highest level of debt in the nation.

The unemployment rate in Queensland has risen from 5.6% in February 2020 to 7.7% in June 2020, representing the loss of over 158,000 jobs.

Queensland’s third largest economic contributor is mining. Unlike other industries, the capital-intensive and remote working conditions of mining firms have enabled operations to continue, minimally hindered by COVID-19. Queensland’s focus on mining has been advantageous relative to the retail-focused economies of Victoria and New South Wales.

Retail trade in Queensland fell by 15.8% in April 2020, before rebounding by 16.6% in May 2020. Social distancing restrictions were lifted as COVID-19 was effectively contained, supporting significant retail trade recovery. The state’s ongoing border closure to most interstate arrivals has prevented any significant resurgence in COVID-19 cases.

Queensland has been particularly affected by the loss of tourism revenue. Prior to the emergence of COVID-19, more than 26 million domestic and international overnight visitors came to Queensland each year. Tourism is a $28 billion industry for the state, directly and indirectly employing over 234,000 people. Tourism generated $67.3 million a day in overnight visitor expenditure across the state over the year through March 2020. Tourism to Queensland has completely ceased as a result of border closures to control the spread of COVID-19.

Western Australia

Unlike the east coast, Western Australia has achieved a near elimination of COVID-19. The state has been fortunate to benefit from a strong appreciation in commodity prices, which has contributed to greater royalty income from mining operations. The price of iron ore has been particularly strong, rising from close to USD$80 per tonne in April 2020 to over USD$100 per tonne in July 2020. According to the Department of Jobs, Tourism, Science and Innovation, the average cash cost of Western Australia's iron ore exports in 2019 was USD$29.6 per tonne. Royalties from gold mining have also been supported by an appreciation in the gold price from USD$1,600 per ounce in February 2020 to over USD$1,900 in July 2020.

Western Australia’s GSP contracted by an estimated 5.1% in the final quarter of 2019-20, leading overall growth for the year to decline to 0.7%. GSP is expected to contract by 3.1% in 2020-21, before returning to growth. Unemployment in the state was at 5.2% in February 2020. The unemployment rate has since risen to 8.7% in June 2020, representing the loss of over 81,000 jobs.

Social distancing restrictions in Western Australia have been almost completely removed, enabling a return to normal economic activity. From the 27 June, gathering limits have been removed and all major events may resume, with the exception of large scale, multi-stage music festivals.

Retail trade in Western Australia declined by 16.8% in April 2020, but rebounded by 19.7% in May 2020. The relaxation of social distancing from June onwards is anticipated to support a further resurgence in retail trade. However, persistently high unemployment numbers will likely continue limiting consumer expenditure. Over 78,700 businesses in Western Australia have received JobKeeper wage subsidy support from the Federal Government, equivalent to 10.5% of all private sector enterprises in the state.

South Australia

South Australia has demonstrated a near complete elimination of COVID-19. The state government has not released an outlook for GSP. However, an estimate from Flinders University expects a 12.5% decline in the final quarter of 2019-20, followed by a return to growth from the first quarter of 2020-21. Unemployment in South Australia has risen from 5.7% in February 2020 to 8.8% in June 2020, representing the loss of over 32,000 jobs.

South Australia’s economy was in a weaker position prior to the COVID-19 pandemic, relative to the national average. Australian GDP grew by 2.89% in 2018-19, but South Australia's annual growth rate for the same year was only 1.34%. In the December quarter of 2019, national aggregate demand rose by 0.3%, while South Australia’s equivalent measure declined by 0.1%. Although South Australia was in a worse position relative to more prosperous states like Victoria and New South Wales, it is likely to report a stronger rebound from COVID-19 than most other state economies.

Other state economies have grown significantly over the past decade in part due to a strong reliance on immigration, robust Chinese demand for Australian exports, and urbanisation. South Australia has had a lower reliance on these factors compared with other states, insulating it from the disruption of COVID-19. In addition, South Australia’s tourism industry is more reliant on domestic tourists rather than international arrivals. Domestic tourism is likely to rebound faster than international tourism, enabling a faster recovery for the state.

IBISWorld reports used to develop this release:

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