Lower rates to benefit Victoria, NSW most
With the official cash rate falling 200 basis points to 2.75 per cent since November 2011, "heavily mortgaged families" in NSW will have more financial flexibility, according to the Deloitte Access Economics Business Outlook report.
"It also helps explain why retail sales have been in line with, or even better, than those nationally," it said.
Deloitte predicts NSW gross state product (GSP) growth to remain steady at 2.4 per cent for 2012-13, before rising gradually over the next two financial years.
Victoria has struggled in recent years with the Australian dollar above parity for an extended period.
"The announcement of Ford's plans to cease local manufacturing at its Geelong and Broadmeadows plants in late 2016 helps to attest the Australian dollar is pressuring many firms," Deloitte said.
But if the dollar keeps falling, as economists predict, Victoria will hope it can regain ground in tourism and international education.
"Victoria is still growing and, compared with many other states, it boasts better infrastructure, better land release and reasonable population growth prospects."
Victorian GSP growth is tipped to be 2 per cent for past financial year before jumping to 2.6 per cent by 2014-15, Deloitte predicts.
The situation is more dire in WA, which isn't in recession, but it is slowing quickly.
For the past financial year, the West Australian Department of State Development forecasts GSP to grow by 6 per cent. Deloitte predicts 5.6 per cent.
For this financial year and 2014-15 Deloitte forecasts a significant slowdown, falling to 3.3 per cent, then 1.9 per cent.
Deloitte said WA benefited most from the mining construction boom, so it was natural it would be more exposed that other states when investment eased. "[Miners] are especially cautious with developments in WA. That is because costs have risen enormously here, placing Australia at a competitive disadvantage in fighting for our share of the next round of resource spending," it said.
Frequently Asked Questions about this Article…
Deloitte's Business Outlook finds that lower official cash rates (down 200 basis points to 2.75% since Nov 2011) and a weaker Australian dollar should benefit New South Wales and Victoria. In NSW, heavily mortgaged households gain more financial flexibility, supporting retail spending. In Victoria, a cheaper dollar could help tourism and international education recover after pressure from a stronger currency.
Deloitte predicts NSW gross state product (GSP) growth to remain around 2.4% for 2012–13 and to rise gradually over the following two years. For everyday investors, that steady growth suggests relatively resilient consumer demand and housing-related activity—factors that can support retail, property-related investments and local businesses.
Victoria struggled when the Australian dollar was above parity, which put pressure on manufacturing and export-exposed sectors. Deloitte notes Ford's plan to cease local manufacturing at Geelong and Broadmeadows as an example of currency pressure. If the dollar continues to fall, Victoria could regain ground in tourism and international education—areas that typically benefit from a weaker currency.
Deloitte says Western Australia is slowing quickly (not in recession) after a mining construction boom. While the WA Department of State Development estimated around 6% GSP growth last year, Deloitte put it at 5.6%, then forecasts a slowdown to 3.3% and 1.9% over the next two years. The report warns miners are cautious because rising costs make Australia less competitive for new resource spending—an important risk for investors with heavy exposure to WA mining.
The report says the 200 basis-point fall in the official cash rate to 2.75% has given 'heavily mortgaged families' in NSW more financial flexibility. That relief helps explain why retail sales in NSW have been in line with or even stronger than national retail performance, supporting consumer-facing businesses.
Deloitte cites Ford's announcement to cease local manufacturing at Geelong and Broadmeadows (late 2016) as evidence that a strong Australian dollar has pressured manufacturers. For investors, this highlights sector-specific currency risk and structural challenges for local manufacturing—factors to consider when assessing exposure to Victorian manufacturing stocks or related industries.
According to Deloitte, New South Wales and Victoria are the main beneficiaries of lower interest rates and a falling Australian dollar, thanks to household relief, retail resilience (NSW) and potential gains in tourism and international education (Victoria). Western Australia is the most exposed loser, facing a significant slowdown as mining investment winds back.
Investors should note the differing state dynamics highlighted by Deloitte: NSW and Victoria show steadier growth prospects supported by lower rates and a weaker dollar, while WA faces a sharp slowdown tied to mining investment. That means thinking about geographical and sector exposure—for example, consumer and service sectors in NSW/Victoria versus resource and mining exposure in WA—while keeping in mind the report's economic forecasts and risks.
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