How would SA fare in a global economic downturn?
While international and domestic experts on the economy present confusing opinions on the possibility, extent and severity of a global downturn in the immediate future, none will say categorically there won’t be one. See article in this newsletter headed It’s confusing when experts can’t agree on economic outlook.
Assuming there is a global economic downturn in the next year or so that impinges negatively on whatever state our domestic economy happens to be at that time, how would SA business owners be expected to fare?
Businesses may hope for the best but should plan for the worst. Basics should be in the forefront of their minds, not to be dismissed as cliches. Many a cliché is a fundamental truth. Business operators should stay alert for both threats and opportunities – particularly opportunities associated directly or indirectly with defence industries, education, agriculture, mining, space science, Whyalla’s resurrection, and solar projects.
There could scarcely be a better time for business owners to maintain liquidity, to aim for flexibility, review risk management, to beware of pitfalls inherent in expansion, and to remember that so many risks are heightened where there’s no current succession plan.
However, according to a CommSec State of the States report at the end of January the SA economy could stand up fairly well should the prophets of varying degrees of doom be to any degree correct.
Some positives for SA
The report rates the Victorian and NSW economies equal top of the list, with SA fifth overall. But it is third for business investment and overall construction work done, showing improvement on equipment spending and housing finance, although slipping on dwelling starts, jobs and population growth.
A National Australia Bank (NAB) report released this month says weakening conditions are relatively broad based across all States, indicated by declines in the past six months across all industries except mining.
Author of the report, NAB’s chief economist Alan Oster believes “significant slowing in the momentum of activity” means business conditions have just suffered their biggest monthly drop since the GFC.
Yet if there’s been “significant slowing” in SA it’s not apparent to Business SA’s Nigel McBride who says business confidence here is the highest it’s been for a decade.
He claims “SA has a solid, broad based economy that’s becoming increasingly more effective with exports and winning overseas markets”
SA’s resistance to a downturn
Projects costing more than $1bn are expected to be completed in Adelaide’s CBD this year. More than $2.9bn in developments – including residential commercial, hotels and student accommodation - have either begun or have scheduled starting dates.
Plans have been lodged for two new major solar power developments in the State’s mid-north, which if approved, would further boost jobs growth and momentum to the SA economy that’s being provided by $13bn worth of solar and renewable energy projects already in hand.
Scheduled submarine and other scheduled naval shipbuilding projects total $115bn, including $3bn for offshore patrol vessels now under construction.
If an economic downturn accelerates the fall of house prices, South Australians will suffer proportionally less financial pain because prices never reached the peaks here that they did last year in other States.
Economic retardation occasioned by SA’s perennial negatives, an aging population and lagging immigration growth exacerbated by a brain drain to other States with better job prospects, seems capable of turnaround – and there are already signs this is starting to happen with the brain drain.
Contributing further to a turnaround in SA’s population loss will be Federal Government policy aimed at diverting the disproportionate flow of migrants to the eastern States. There is also Lot 14’s potential (the former RAH site), combined with universities’ growing interest in working with commerce and industry on research and development; finally, the inevitable demand for workers as shipbuilding and a formidable array of other defence projects come on stream.
Optimism is by no means unreasonable
The Prime Minister Scott Morrison gave State Premiers until January 31 to make submissions to him on immigration. SA premier Steven Marshall has made a strong case for modifications to National immigration policy that would benefit our State.
He points out that while most migrants want to live in cities on Australia’s eastern coast – often to the disadvantage of local economies, SA needs to increase its 7% of immigration, especially where migrants have skills much needed in commerce and industry.
There are some 150,000 businesses registered in SA, about 66% of them sole traders, the remaining 50,000 or so of them employing anything from less than 20 employees to hundreds, collectively contributing about $34bn annually to the State’s economy.
Owners must be confused by a constant bombardment of variegated opinion about a forthcoming economic downturn and how best they should ready themselves for it, but it’s by no means unreasonable for them to be optimistic on two fronts.
If there is to be a downturn, the weight of expert opinion seems to favour a little “r” rather than a big “R” and dealing with it would seem to have more of an upside in Adelaide than most places in Australia and certainly most places on Earth.