For the financial year which ended on 30 June, the volume of goods and services produced in Tasmania rose by 3.4%, a distinct pick-up after two years of growth at just over 2% per annum. Allowing for differences in population growth, Tasmania’s economic growth during the 2007-08 financial year was above the national average for the fifth time in the past seven years. More than 5,400 new jobs were created in Tasmania during 2008, representing a proportionately faster growth rate than in any other State except Western Australia.
As a result, Tasmania’s unemployment rate declined to below the national average during the second half of last year, for the first time in almost three decades. On a range of
other indicators, such as retail sales and building approvals, Tasmania also outperformed the national average.
These outcomes were achieved despite interest rates and petrol prices rising for most of the year (until the last three months when both began falling sharply); in the face of continuing drought, adversely impacting not only rural production but also forcing greater imports of electricity from Victoria; and without any of the promised new jobs associated with construction of the controversial pulp mill in the Tamar Valley, originally scheduled to commence in September but (at the time of writing) still awaiting both financing and final environmental approvals.
This apparent resilience on the part of the Tasmanian economy will be severely tested in 2009. Many of Tasmania’s principal export markets slipped into recession during 2008, as the global financial crisis began to weigh increasingly heavily on household spending, employment and business confidence around the world. The global downturn seems likely to deepen further this year, with most official and private sector forecasters now anticipating that production of goods and services around the world may actually shrink in 2009, for the first time since the end of the Second World War.
And with the commodities boom which, for a time, seemed to promise so much prosperity for Australia having come to an abrupt end, along with the seemingly inexorable rise in share and house prices, it is probable that the Australian economy will this year experience its first recession since the early 1990s, despite considerable efforts by the Australian Government and the Reserve Bank to stave off that prospect.
Recent recessions have hit Tasmania harder than other parts of Australia. In the early 1980s, Tasmania’s economy shrank for three consecutive years, by a total of almost 7%, compared with a 2.4% contraction in the national economy over a considerably shorter period. In the 1990-91 recession, Tasmania’s economy declined by 1.4%, more than twice as much as the national economy (although Victoria and South Australia fared worse). In each of these recessions, Tasmania’s unemployment rate peaked at a higher level than the national average, and subsequently came down more slowly.
History therefore suggests that 2009 may be a particularly difficult year for the Tasmanian economy.
And yet it would be wrong to be guided solely by history, and ignore the possible implications of the substantial structural changes which Tasmania has undergone over the past two decades.
At the beginning of the 1990s, the mining, manufacturing and construction sectors – industries which are almost always more severely affected by recessions than other parts of the economy – accounted for about 35 cents out of every dollar of goods and services produced in Tasmania, some 5 cents more than these three sectors represented of the output of the national economy. Last year, by contrast, these three sectors accounted for 24 cents of each dollar of goods and services produced in Tasmania, about 2½ cents less than the national average. Tasmania should thus be relatively less affected than the rest of Australia by the inevitable toll which recession will take of activity and employment in these sectors, rather than more severely affected as was the case during the recession of the early 1990s.
The last recession was also made more severe in Tasmania than in many other parts of Australia by harsh cutbacks in the public sector, made necessary by the mis-management of the States finances in the 1980s. Tasmanian government employment fell by over 20% during the early 1990s, proportionately almost three times as much as total State and Territory government employment across Australia. With Tasmania’s public finances having been much more prudently managed since the mid-1990s, although some modest ‘belt-tightening’ will be required, there should be no need for swingeing reductions in public sector employment.
Nor is there any requirement for dramatic cutbacks in government capital works programs, as occurred in the early 1990s. On the contrary, the State Government’s relatively strong financial position means that it is well-placed to press ahead with plans to renew, upgrade and extend Tasmania’s economic and social infrastructure.
Tasmanians may also be better-placed, in some respects, to weather some of the financial pressures that are contributing to the downturn in the national economy.
Tasmanians haven’t had to stretch their finances as far in order to acquire their homes as people in mainland metropolitan centres, and (because they are, in general, not as wealthy as their mainland counterparts) have been less affected by the meltdown in the sharemarket.
Despite these differences, however, with around half of Tasmania’s output of goods and services sold either overseas or to the mainland, Tasmania’s economy cannot escape being adversely affected by the global recession and its consequences for the Australian economy. There will be hardship for Tasmanian households and businesses.
The abrupt end of the commodities boom, although less of a shock to Tasmania than to mineral-rich States like Queensland and Western Australia, should nonetheless serve to remind us that Tasmania’s economic future does not predominantly lie, as its past once did, in the production of essentially undifferentiated commodities competing largely on the basis of price against those with better access to larger resource bases, cheaper labour or capital, and closer proximity to markets; but instead is more likely to be determined by its
ability to produce and market highly differentiated goods and services, embodying a high intellectual content, and for which customers can be persuaded to pay premium prices.
As numerous articles in previous editions of this magazine have demonstrated, this is not an abstract fantasy, but rather something which pioneering individuals and businesses have already begun to demonstrate can be achieved in the Tasmanian context. But for these achievements to be replicated on a wider scale, a concerted effort must be made to upgrade the education and skills embodied in Tasmania’s present workforce and the workforce of the future.
The coming economic downturn will serve to heighten the importance of that task.
40° South is a quarterly magazine showcasing the best of Tasmania: for more see their website http://www.fortysouth.com.au/
Saul Eslake, for 40° South magazine, Issue 52, March 2009. …Tasmania’s economic future does not predominantly lie, as its past once did, in the production of essentially undifferentiated commodities competing largely on the basis of price against those with better access to larger resource bases, cheaper labour or capital, and closer proximity to markets…
2008 WAS IN many respects a surprisingly good year for the Tasmanian economy.