Perth and Melbourne overtake Sydney in GDP growth

Perth and Melbourne are leading the way among Australian cities in terms of gross domestic product while Sydney’s contribution has halved, a new report reveals.

The report, by SGS Economics and Planning, is based on figures from the Australian Bureau of Statistics, which provides estimates of economic activity for each state on an annual basis.

The statistics provided insights into the relative economic performance of each of Australia’s major capital cities over the past 20 years. They also highlight the challenges facing each city.

“During the 1990s, Sydney contributed 26.9% of the growth in Australia’s GDP, making it the largest driver of the national economy,” the report said.

“Melbourne was the second largest contributor with 16.5%, followed by regional Queensland (10.6%), Brisbane (10.5%) and Perth (8.5%).

However, the 2000s saw some clear changes in the distribution of growth, with Melbourne overtaking Sydney as the main economic contributor to national GDP growth.

Queensland and Western Australia also increased their shares of growth as a result of mining.

“[In 2010-11], Perth was the main economic contributor (20.7%), followed closely by Melbourne. The main driver in both of these cities was the professional services industry.”

According to the report, 2000-2010 could be described as Sydney’s “lost decade” of economic prosperity, with “a breakdown in the urban system of the city” identified as a key factor.

This breakdown includes poor housing policies – which have generated congestion and have had a significant impact on affordability – and a lack of investment in transport capacity.

Limited opportunities for advanced businesses services – to relocate in strategic locations at affordable rents – are also to blame.

“Construction was the largest contributor [to Sydney’s GDP growth for 2010-11], followed by electricity, gas, water and waste, and transport and storage,” the report said.

“For a global city with a deep pool of professional and financial services, this distribution of economic growth is concerning.”

“This is especially so given the growth in the professional services industry across most of Australia’s other major capital cities.”

In 2010-11, professional services represented half of the GDP growth for Melbourne, the report reveals. Financial and insurance, along with construction, were also large contributors.

Professional services, and financial and insurance, represent 23.3% of Melbourne’s economy, up from 11.9% in 1989-90. Over the same period, manufacturing fell from 19.4% to 8.3%.

“[This] is a continuation of a long-term trend as the economy of Melbourne steadily moves away from a manufacturing base to one driven by knowledge-intensive services,” the report said.

“Melbourne is on the verge of overtaking Sydney as the main hub for professional services in Australia.”

Meanwhile, the rapid expansion of mining production in WA saw Perth’s contribution to GDP rise to 20.7% in 2010-11, after hovering around 8% in the 1990s and 2000s.

“This was driven by growth in a range of industries. Professional services, construction and administrative support industries were the strongest performers,” the report said.

However, Perth’s exposure to the mining boom means that a key challenge for the city is to effectively manage economic and population growth.

“Recent investments in public transport capacity will serve Perth well, as professional services employment continues to grow in central Perth,” the report said.

Meanwhile, Brisbane and Adelaide both exhibit more of a “boom and bust cycle” than the other cities. As a result, GDP contribution sat below 5% for both cities in 2010-11.