Flexibility and growth
Industry Insights 1/2018 — Flexibility and growth — focuses on structural change in the economy and the spatial distribution of Australia’s growth.
Flexibility and growth is the first edition of Industry Insights. This new publication examines the major economic factors shaping Australia’s industries, regions and the economy. It delivers objective, robust and high quality economic analysis from the Office of the Chief Economist and replaces the Australian Industry Report with a shorter and more frequent format.
Chapter 1 examines how the reform processes of the 1980s and 1990s increased the productivity and flexibility of Australia's economy. Chapter 2 provides a snapshot of Australia's economy. Chapter 3 describes how economic changes have played out in Australia’s regions.
Making a miracle: through crisis, reform and recovery
After a period of relatively stable economic growth following the end of the Second World War, Australia experienced a series of major recessions in the 1970s and early 1980s.
In response, policymakers progressively introduced a series of important economic reforms that transformed the Australian economy and laid the foundations for an unprecedented period of economic growth.
By increasing competition in domestic markets and exposing local firms to international markets, these reforms created a more flexible, dynamic and productive economy.
This chapter explores those reforms, and describes how they enabled the economy to restructure in response to new opportunities and changing conditions with greater efficiency.
The Australian economy in 2017
Australia recorded its 26th year of continuous economic growth in 2017, a record among developed economies. Despite this streak, economic growth was modest through the year and below the long-run trend.
Australia’s GDP growth was driven primarily by household consumption and exports, which grew strongly on the back of higher commodity prices.
In contrast, business investment continued to detract from GDP growth as mining investment declined from the highs during the mining investment boom.
Labour market conditions were mixed, with a strong rise in full-time employment but slow wage growth.
The spatial distribution of economic growth
Over the past 15 years, two key changes occurred across Australia’s economic geography. The first was the concentration of economic activity into CBDs. The second was the shift of activity to mineral-rich regions during the mining boom.
A new time series of gross regional product shows that over this period mining regions have experienced the fastest growth, while capital cities have grown faster than regional areas.
The shift of economic activity to cities can be explained by shifting demographics, openness to trade, and changing industry composition.
Moving forward, cities must be well placed to deal with increasing demand for their resources.