November 28, 2014
Source: The Sydney Morning Herald
Author: Matt Wade
Sydney is driving the national economy, having contributed almost 40 per cent of Australia’s growth last financial year.
The economy of greater Sydney expanded 4.3 per cent in 2013/14 – its fastest growth rate in 14 years – a report about the economic performance of Australian cities has found.
The city’s financial sector, which includes banks and insurance firms, made the biggest contribution, followed by manufacturing, professional services, construction and real estate services.
Sydney’s annual output reached $353 billion; 23 per cent of Australia’s gross domestic product.
The report, by consultancy SGS Economics & Planning, said Sydney’s growth was so strong that a hypothetical “Reserve Bank of Sydney” would set interest rates a full percentage point higher than the official rate of 2.5 per cent.
However, hypothetical reserve banks in Melbourne, Brisbane, Perth, Adelaide and Hobart would all have interest rates lower than the official rate, the report said.
“The RBA has to manage a booming Sydney economy while the rest of the country is struggling to grow in the face of a range of headwinds,” the report’s author, economist Terry Rawnsley, said.
Sydney’s economy underperformed for much of the last decade. However, as the effects of the mining boom fade, it has emerged as a key source of national growth.
“This is a role Sydney played in the Australian economy back in the 1990s,” Mr Rawnsley said. “It went off the radar during the mining boom during the 2000s but now that the mining boom is coming off, it might be Sydney’s role again to power along.”
Sydney contributed 37.9 per cent of Australia’s GDP growth in 2013/14, more than the contributions of Melbourne, Brisbane, Perth, Adelaide and Hobart combined. The minerals rich regional Western Australia contributed 29 per cent.
Mr Rawnsley said Sydney’s financial sector had benefited from economic policies to revive growth in the United States and Europe.
“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,” he said.
Low interest rates and a revival in the housing sector have also boosted economic activity in Sydney. Manufacturing made a healthy contribution to growth last financial year, even though its share of the city’s economy is less than half of what it was 20 years ago.
Mr Rawnsley said it was encouraging that Sydney’s growth was so broad based.
“While challenges to growth still remain for the nation’s largest city, Sydney appears to have turned the corner,” he said.
Sydney’s growth rate was more than double that of every other state capital, although it was lower than in regional Western Australia and Northern Territory, which are still being boosted by mining activity. The economic performance of regional NSW was in stark contrast to that of Sydney; it contracted by 3.5 per cent in 201314. Mr Rawnsley said this was caused by “oneoff factors” including the weather.
Committee for Sydney chief executive Tim Williams said the report underscored the crucial role that Sydney’s financial sector is playing at a time of structural change in the national economy.
“What is vital now is to ensure that we get our necessary share of federal infrastructure investment – not in roads, but in city public transport – the key to maintaining Sydney’s role as an economic engine for the nation,” he said. Australia’s second largest city economy, Melbourne, grew 1.8 per cent in 2013/14 to $277 billion. It was Melbourne’s lowest growth rate since 2000-01.