Business services sector outlook good, but economy still patchy: Access Economics

Australia’s booming resources sector will help the nation shrug off the impact of this year’s natural disasters, but a new business outlook report from Deloitte Access Economics says many sectors face a patchy year due to the threat of higher interest rates and sluggish consumer spending.

The Access report says strong commodity prices will underpin an increase in Australia’s terms of trade and a return to a budget surplus, despite the high Australian dollar and natural disasters over summer delivering a hit to the local economy.

National income for 2011-12 is tipped to reach $20 billion and Access says the ‘stronger for longer’ mantra for commodity prices is still relevant, despite Federal Treasurer Wayne Swan warning that this round of the boom will differ to the first.

“While Australia watched horrified as floods and cyclones hit at home and earthquakes and tsunamis caused tragedies abroad, world prices for the industrial and farm commodities we have in abundance surged past the peaks they hit back in mid-2008,” the firm’s Business Outlook report says.

“That means the world is begging Australia to grow faster, throwing enormous sums of money at our export sector, and expanding our national income fast.”

“With the world licking its lips for our resources, our export earnings are (and will be) through the roof.”

But while the commodities boom is good news for the Federal Budget, miners and agricultural producers, Deloitte paints a mixed picture for specific sectors of the economy.

Manufacturers, education providers for overseas students and the tourism sector will be hurt by the strong Australian dollar, while retailers are also on the back foot as Gen Y continue to save.

The recovery in housing construction is also likely to hurt a number of property and household-focused sectors.

The good news comes from mining, engineering, construction and business services.

“Even with the recovery in housing activity dragging the chain, the sheer size of the surge in engineering work that is underway (with multi-billion dollar project announcements now so commonplace that they are no longer a sure spot to catch a politician in a hard hat) seems set to propel construction to the top of the leader board in 2011.”

There is good news in business services too. Although the wider economy is very patchy, professionals are riding a lift in corporate profitability.

The quarterly report, which calls for a tight Federal Budget this May, also warns reduced migration levels will cut into economic growth.

“What Australia has failed to achieve is to have the people power this nation needs to get the maximum dividends from the prices the world is paying us for our commodities,” the report says.

Deloitte has also tipped interest rate rises over the year, with underlying inflation said to have bottomed and now heading north.

And just in case you thought Australia’s 4.9% unemployment rate couldn’t get any lower, Deloitte says supply trends point to rising skills shortage and further falls in unemployment.

“Remember that mining and construction – employers of one in 10 Australians – are very reliant on the one million workers here on temporary visas. Unless numbers of the latter ramp up fast, unemployment could soon drop to rates last seen decades ago,” it says.

Taking a state-by-state look, Deloitte says:

• Queensland will rejoin Western Australia as the fastest growing state, after the floods and cyclones rattled the northern state early in the year, although the high local currency will hurt the state’s key tourism industry;
• Tasmania, Victoria and the Australian Capital Territory are described as being “dragged down by consumer caution”;
• Manufacturing in Victoria, Tasmania and South Australia is expected to be particularly hit by the high Australian dollar;
• While Victoria is praised for its population performance and housing activity policies, infrastructure problems will be harder to fix than many hope;
• New South Wales’ outlook is said to be “more determined by policymaking in Beijing and the pace of factory output in Shanghai than it is by decisions in Macquarie Street”;
• Northern Territory has “excellent” prospects, but its economic health is dependent on large projects;
• The ACT remains largely dependent on Federal spending, with residents still cautious about splashing cash and therefore limiting the national capital’s growth prospects.