SYDNEY: Australia’s two-speed economy is back — only this time Sydney is leading an east coast boom while mining states lag.
Australia’s biggest city contributed 38 per cent of the country’s growth in the year through June, up from an average of 22 per cent in the past 24 years, consultancy SGS Economics & Planning Pty said in a November 27 report.
Companies such as retailer Dick Smith Holdings Ltd are making hay as data showed sales of homewares, electrical goods and garden supplies in New South Wales state surged in October by the most in 14 years.
The conundrum for central bank governor Glenn Stevens is that record-low interest rates designed to rebalance growth are too low for Sydney, where house prices have soared, and too high for the rest as mining investment falls, new jobs fail to keep pace with population growth and confidence slides.
As the brakes on growth override the drivers, two of Australia’s four major lenders forecast policy makers will cut the benchmark rate next year, having held it at 2.5 per cent for 16 months.
“Sydney has been the epicentre of residential investment that has driven up house prices and provided a wealth effect,” said Stephen Walters, JPMorgan Chase & Co’s Sydney-based chief economist for Australia.
“Sydney’s role as a major financial hub has also provided access to global capital flows as markets over the past few years have been flooded with liquidity,” Terry Rawnsley, an economist at SGS, said in the report.
“The strong growth in Sydney’s largest industry and low interest rates helped support growth.” Bloomberg