Australian cities are orphans. Responsibilities for their economic management falls between all tiers of government. Official statistics do not publish economic data at city level, and when published, are given a secondary importance. This is despite the fact that even during the recent mineral exploration boom, Australian cities have provided the bulk of growth in Australia’s economy. For the past five years SGS has published the estimates in this format. Our research into understanding the distribution of economic growth has filled a key void in economic policy.
The 2014-15 Australian Cities Accounts highlight that Sydney and Melbourne are driving the national economy. Sydney contributed 30.3 per cent of all Australian Gross Domestic Product (GDP) growth in 2014-15. While driven by Financial services, its growth was broad based with a range of industries contributing to growth. The city’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.
Melbourne contributed 24.0 per cent of all Australian GDP growth in 2014-15. Its 3.1 per cent increase in GDP was the strongest since 2010-11 with a broad range of industries contributing to growth.
Increased mineral production drove the economy of Regional Western Australia which contributed 23.7 per cent to GDP growth. The end of the mining boom has been brutal on Perth’s economy, with GDP growth diving to 0.3 per cent in 2014-15. This is the lowest level of growth recorded for Perth since 1990-91.
Half of Australia’s population were living in a region with falling income per capita during 2014-15, with Regional New South Wales, Regional Victoria, all of Queensland, Regional South Australia and Perth experiencing a fall in GDP per capita.
While the national growth figure is around long term trend, it is being driven by two sectors - mining production in remote parts of the country and Financial services concentrated in inner cities. This is far removed from where the bulk of the business and households are located.
The large divergence in growth rates is presenting a challenge for the Reserve Bank of Australia when it sets the interest rate. To highlight the economic divergence, a hypothetical situation where each region has its own central bank setting local interest rates was created. In this hypothetical situation, had there been a Reserve Bank of Sydney over the past year they would have set rates 3.5 per cent during 2014-15. A Reserve Bank of Melbourne would have set rates at 2.0 per cent.
Perth would have seen interest rates cut from 2.5 per cent in 2012-13 to 1.25 per cent in in 2014-15. Over the same time the Reserve Bank of Brisbane would have cut rates by 1.5 percentage points to 1.0 per cent.