Westpac Coast-to-Coast June 2018 - An update on Australia's state economies Westpac Institutional Bank - XYLO Foreign Exchange

 
Westpac
Coast-to-Coast
June 2018
An update on Australia's state economies

Westpac Institutional Bank
Westpac Economics

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Bill Evans                                       Dominick Stephens                     Singapore
Chief Economist                                  Chief Economist, New Zealand          12 Marina View
Global Head of Economics &                                                             #27–00, Asia Square Tower 2
Research                                         Michael Gordon                        Singapore, 018961
                                                 Senior Economist
Andrew Hanlan                                                                          New York
                                                 Satish Ranchhod
Senior Economist
                                                 Senior Economist                      39th Floor
Matthew Hassan                                                                         575 Fifth Avenue
Senior Economist                                 Anne Boniface                         New York, 10017 USA
                                                 Senior Economist
Justin Smirk
Senior Economist                                 Paul Clark
                                                 Industry Economist
Elliot Clarke CFA
Senior Economist
Simon Murray
Economist

Coast–to–Coast produced by Westpac Economics

Editor:             Andrew Hanlan, Senior Economist
Authors:            Matthew Hassan and Elliot Clarke, Senior Economists
                    Simon Murray, Economist

Email: economics@westpac.com.au

This issue was finalised on 21 June 2018

             Publication enquiries, Westpac Economics, Telephone (61–2) 8254 8720, economics@westpac.com.au

2
Contents

Overview

Australian economic outlook                                 4
States overview                                             6
Employment and activity, by state                           8
Employment by industry, a state view                        9

States

New South Wales: construction & exports key positives       12
Victoria: capacity building investment                      14
Queensland: government's aspirations strong                 16
Western Australia: recovery still anaemic                   18
South Australia: private spark necessary                   20
Tasmania: economy powers ahead                             22
Summary indicators                                         24

Forecasts: state activity and employment                   25

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                                                                                               3
Westpac Coast-to-Coast June 2018

Australian economy

The March quarter national accounts provided further confirmation that the Australian economy performed solidly over the
past year. However, areas of weakness persist and are likely to weigh on the outlook.

Real GDP grew by 1.0% in the March quarter, lifting annual growth to 3.1% – an above trend outcome, with trend judged to be
2.7%. Non-farm GDP grew by 3.6% over the year, the strongest annual outcome since 2012. These results bring output growth
more into line with that for employment, which increased by 3.5% over the year. Domestic demand growth is in excess of 3%,
a trend evident across the majority of states, as discussed in more detail in this report.

Economic conditions have been supported by a combination of global and domestic forces, leading to conditions becoming
more synchronised across the state economies, namely:

1. The global backdrop is more favourable. World growth accelerated in 2017 to 3.8%, up from 3.2%, the strongest pace since
   2011. We expect world growth to hold around this 3.8% pace in 2018, supported by the US. However, conditions in China are
   likely to moderate.

2. Commodity prices are up off the lows of late 2015, improving cash flows for miners and boosting government tax revenues.
   Going forward, we expect commodity prices to moderate as China slows and supply expands.

3. The mining investment drag is greatly diminished, albeit not quite complete.

4. Non-mining investment is trending higher, led by construction activity, to meet the needs of a fast growing population.
   Notably, total business investment turned the corner in 2017, up 6%, following four years of decline.

5. Public demand, a quarter of the economy, grew by a brisk 5.5% over the year, directly adding 1.3ppts to activity, with
   additional positive spill-over effects. Investment in an upswing (centred on transport infrastructure) and additional
   resources are being directed to health. Above trend public demand growth is a broadly based national trend.

6. Exports are a growth driver, adding 0.9ppts to activity over the year, with strength in LNG (expanding capacity) and
   services (albeit current estimates suggest a recent consolidation).

Weaknesses remain, particularly around the consumer and housing. The consumer is vulnerable at a time of weak wages
growth, high debt levels and slipping house prices - a dynamic that is, in large part, evident nationwide. The housing sector
is cooling as lending conditions tighten, with prices easing back from recent highs. Auction clearance rates in Sydney and
Melbourne have slipped further to now be at below average levels, following a particularly strong upswing in these markets.

Consumer spending is choppy (up only 0.3% in the March quarter) and ‘slightly below trend’ (up 2.9% over the year). Even the
current pace of consumer spending appears unsustainable over the forecast period – we expect a slowing to 2.5% for 2018
and 2019. Spending has been supported by a drop in the savings rate, declining to 2.1% from 4.0% a year ago, with the scope
for a further run-down diminished. In addition, the turnaround in housing price growth, from 11.3%yr nationally a year ago to
–1.5%yr currently, could see negative spill-overs for consumer demand, although ‘wealth effect’ boosts look to have been very
muted through the price upturn.

Total labour income grew by a robust 5.1% over the past year, but this was largely reliant on a very strong hiring burst that
looks to have been temporary. Wages, as measured by average compensation of non-farm employees, grew by only 1.6%
over the year, to be flat in real terms. Employment increased by 3.5% in the year to the March quarter 2018, twice population
growth, in part a catch-up following a hiring pause around the July 2016 Federal election. Jobs growth has subsequently
slowed in 2018, to 1.2% annualised for the initial five months – for the full year we expect an increase of around 1.8%.

As to home building activity, this contracted by 5.0% in 2017, consistent with the decline in dwelling approvals from the
historic highs of 2016, largely centred on high rise projects. This downturn has further to run with the contraction accelerating
into 2019 after a near-term consolidation early in 2018. Large increases in new supply and a marked slowdown in sales to
foreigners are weighing on the outlook for residential building.

In summary, key positives around pubic demand, business construction investment and exports will provide a solid base for
economic activity but upside is likely to be constrained by the consumer and housing. We expect GDP growth to average
2.6% for 2018/19 and 2.7% for 2019/20. This is not greatly different from the aggregate view of the state governments, as
expressed in the recent round of annual budgets, which points to growth of 2.8% over the forecast period (see forecast
table page 25). However, this contrasts with the RBA and the Federal Treasury, who expect growth of 3%, 3% plus.

Andrew Hanlan, Senior Economist

4
Westpac Coast-to-Coast June 2018

Australian economic outlook

       Chart 1.                                                                                               Chart 2.

            Australia: real output growth                                                                           Australian outlook: year-end contributions

            % ann                                                                              % ann
        7                                                                                                7                                                                                                           2.7
                                                                                                                                             Sources:
                          GDP        GDP per capita               period averages          Fc/s to                                GDP                                                                             2.5
        6                                                           3.7%, 2.6%
                                                                                                         6                                   ABS,
                                                                                           end 2019                                          Westpac                                                 1.5
        5                                                                                                5            Consumption            Economics
                                                                                                                                                                                                     1.5
                                                                                                                                                                 -0.1
        4                                                                                                4                   Housing                           -0.3
        3                                                                                                3                                                    -0.4                                             Dec-18f
                                                                                                                          Mining inv.                                0.0
        2                                                                                                2
                                                                                                                                                                                         0.8                   Dec-19f
                                                                                                                    Non-mining inv.                                                0.5
        1                                                                                                1
                                                                                                                                                                                            1.1
        0                                                                                                0          Public demand                                                        0.8
                                                period averages
       -1                                         2.5%, 1.0%
                                                                                                         -1                   Exports                                                    0.8
                                                                                                                                                                                               1.1
                                                                      latest: GDP, 3.1%yr
       -2                                                             GDP per capita, 1.5%yr             -2                                           -0.9
                    Sources: ABS, Westpac Economics
                                                                                                                               Imports                 -0.8
       -3                                                      -3
        Mar-92 Mar-96 Mar-00 Mar-04 Mar-08 Mar-12 Mar-16 Mar-20                                                                            -2            -1                0             1                 2            3
                                                                                                                                                                               ppts

       Chart 3.                                                                                               Chart 4.

            Australia: economic activity                                                                            Dwelling approvals: off highs, further to fall

            ppts cont’n yr                                                          ppts cont’n yr                  ’000 mth, annls’d                                                           ’000 mth, annls’d
                          Other*                      Net exports                   Public
        8                 Investment                  Housing                       Consumer             8                             private approvals
                                                                                                              240                                                                                                             240
                                                                                                                                                 trend
        6                                                                                                6
                                                                                                                                                 sa
        4                                                                                                4    200                                                                                                             200

        2                                                                                                2
                                                                                                              160                                                                                                             160
        0                                                                                                0
                                                                                                                                     L.R. avg: 167k
                                                                                                              120                                                                                                             120
       -2                                                                                                -2                                       RBA easing
                                                                                                                                                  cycles
              Sources: ABS, Westpac Economics                                         updated: Jun ’18                                                                          Sources: ABS, RBA, Westpac Economics
       -4                                                                                                -4   80                                                                                                              80
        Mar-02              Mar-06                 Mar-10                Mar-14                Mar-18          Apr-98          Apr-02           Apr-06               Apr-10                  Apr-14              Apr-18

       Chart 5.                                                                                               Chart 6.

            Household labour income off lows …                                                                      … but jobs momentum slows early in 2018

            % ann                                                                              % ann                % ann                                                                                           % ann
       16                                                                                                16         * smoothed
                                                                                           nominal              5                            Employment, %yr*                                        Catch-up in 2017         5
       14                             Labour income                                                      14                                  3 month chg, annls'd*
       12                             National income (nominal GDP)                                      12     4                                                                                                             4

       10                                                                                                10     3                                                                                                             3
        8                                                                                                8      2                                                                                                             2
        6                                                                                                6
                                                                                                                1                                                                                                             1
        4                                                                                                4
                                                                                                                0                                                                                                             0
        2                                                                                                2                                                                                                      2018 loss
                                                                                                                                                                                                                of momentum
        0                                                                                                0     -1                                                                                                             -1
                                 Sources: ABS, Westpac Economics                                                    Sources: ABS, Westpac Economics                               2016 Federal election impact
        -2                                                                                               -2    -2                                                                                                             -2
        Mar-84            Mar-92                Mar-00               Mar-08             Mar-16                 May-06             May-09                 May-12                    May-15                       May-18

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
                                                                                                                                                                                                                                   5
Westpac Coast-to-Coast June 2018

States overview

             Domestic final demand                                                                                           Nationally, domestic demand grew by 3.2% in the year to
                                                                                                                             March 2018, strengthening from 2.3% a year earlier.
             % ann                                                                                        % ann
        8                                                                                                               8
                                                                                                                             Robust economic conditions are evident across most states,
        6                                                                                                               6
                             4.5                                                                          4.6 4.9            particularly NSW and Victoria who are benefitting most
                                                                                    3.7      3.9 3.9
        4                                     3.0 3.1             3.2         3.0                                       4    from low interest rates, a lower dollar, expansionary fiscal
                                                            2.3
        2
                                    2.1
                                                                                                                        2
                                                                                                                             policy and strong global growth which is boosting services.
                     0.8
        0                                                                                                               0
                                                                                                                             Victoria continues to the lead the way, at a time of rapid
       -2                                                                                                               -2   population growth, with demand growth lifting to a near 5%
       -4                                         Mar-17 yr                  Mar-18 yr                                  -4   annual pace and averaging a brisk 4.4% over the past four
                                                                                                                             years. Above trend demand growth is also evident in NSW,
       -6            -6.7                                                                                               -6   lifting to 3.7%. Tasmania has enjoyed the strongest two year
                                                                                    Sources: ABS, Westpac Economics
       -8                                                                                                               -8   period of growth since before the GFC, boosted by stronger
                WA             SA               Qld          Aus              NSW             Tas             Vic            conditions globally and across the mainland.

                                                                                                                             A reduced drag from the mining investment wind-down
                                                                                                                             is key to the turnaround in WA, with annual domestic
                                                                                                                             final demand lifting to 0.8% from -6.7% a year ago. In Qld,
                                                                                                                             demand growth is a robust 3.1%, with SA lagging at 2.1%.

             Consumer spending, per capita                                                                                   Brisk public demand growth, a lift in business investment
                                                                                                                             across the non-mining economy, centred on construction,
             % ann                                                                                        % ann              and exports are key growth drivers.

                               Latest                 1990s avg                       Post GFC avg
        3                                                                                                               3    However, consumer spending remains constrained by weak
                                                                                                                             wages growth and high household debt levels, a force that
                                                                                                                             will likely weigh on the outlook in our view. These dynamics
        2                                                                                                               2    are evident across the states, even more so in the mining
                                                                                                                             states of WA and Qld, where compositional shifts in the
                                                                                                                             labour market are dampening average wages growth. Over
        1                                                                                                               1    the past year, consumer spending per capita is a sluggish
                                                                                                                             0.7% in Qld and 0.9% in WA.

        0
             Sources: ABS, Westpac Economics
                                                                                                                        0    Nationally, consumer spending per capita is 1.3% over the
                   NSW                    Vic                Qld                      WA                Aus                  past year, a fraction above the post GFC average of 1.2%,
                                                                                                                             but well below the 1990s average of 2.2%. Victoria, not
                                                                                                                             surprisingly, is tracking above the national average, with
                                                                                                                             annual per capita spending at 1.5%, a clear notch above
                                                                                                                             the post GFC average for the state of 1.1% but also still well
                                                                                                                             below the 1990s average.

             Growth outlook by state: GSP                                                                                    The economic outlook is robust in the view of the states.

             % chg                                                                                        % chg              The weighted average of the state budget forecasts points
        4                                                  3.5
                                                                                                  3.8                   4    to growth nationally at around 2.8% for each of the three
                                                                                            3.3
             3.0             3.0                                                3.0                                          years 2017/18 to 2019/20. At the margin, we see risks tilted
        3          2.8 2.8         2.8 2.8                                   2.8    2.8                 2.7
                                                                                                              2.6 2.7   3
                                             2.3 2.3 2.3         2.3
                                                                                        2.5                                  to the downside (see forecast table page 25). Notably, the
                                                                       2.0
        2                                                                                                               2    states are less upbeat than the RBA and Federal Treasury,
                                                                                                                             who expect growth nationally to lift to 3%, 3% plus.
        1                                                                                                               1

        0                                                                                                               0    Victoria and NSW both assess that real output growth
        -1                                                                                                              -1   was above trend in 2017/18, at 3.0%, and both anticipate a
                        2017/18f               2018/19f                2019/20f                          Westpac
                      Forecasts: state governments                                                        f/cs               moderation to 2.75% in 2018/19 and in 2019/20. The cooling
        -2                                                                                                              -2   of the housing sector after an extended and strong upswing
              Sources: state budgets, ABS, Westpac Economics
        -3                                                                                                              -3   will weigh on the outlook. We concur.
               NSW             Vic              SA           Tas               Qld            WA           Aus
                                                                                                                             WA expects output to rebound in 2017/18, +2.5%, after
                                                                                                                             a 2.7% fall in 2016/17, and to then strengthen to 3.25% in
                                                                                                                             2018/19 - on an emerging stabilisation in demand and a lift
                                                                                                                             in LNG exports. Qld expects growth to improve to 3.0% in
                                                                                                                             2018/19 and then moderate to 2.75% in 2019/20.

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
6
Westpac Coast-to-Coast June 2018

States overview

       Chart 1.                                                                                            Chart 2.

            State final demand, contributions                                                                    State jobs markets: a mixed start to 2018

            ppts ’ann           Contributions to year end growth, Mar ’18              ppts ’ann                 index                                                                            index
                                                                                                           115   Dec ’12 = 100                                                                              115
                 Public demand                  Business investment                  Sources: ABS,                                                                                      (*share of total
        6        Housing                        Consumption
                                                                                 Westpac Economics    6                                                           WA (11%)
                                                                                                                                                                                          employment)
                                                                                                                       Vic (26%)
                                                                                                                       NSW (32%)                                  Qld (20%)
                                                                                                           110                                                                                              110
        4                                                                                             4                Tas (2%)                                   SA (7%)
                                                                                                                                                                                     Jan ’17

                                                                                                           105                                                                                              105
        2                                                                                             2
                                                                                                                                          Jan ’17

        0                                                                                             0    100                                                                                              100

               3.7%        4.9%          3.1%                    2.1%          3.9%           3.2%
                                                      0.8%                                                                 Sources: ABS, Westpac Economics
       -2                                                                                             -2   95                                                                                               95
             NSW            Vic          Qld         WA          SA           Tas            Aus            May-12                   May-16             May-12                   May-16

       Chart 3.                                                                                            Chart 4.

            Dwelling approvals: off highs, but not in Vic                                                        Dwelling prices: housing markets cool

            ’000                  6 month sum, annualised                                      ’000              %                      6mth growth rates, annualised                                  %
       90                                                                                             90    40                                                                                              40
                                                                                                                                 Sydney             Melbourne        Brisbane              Perth
       80         Vic     NSW          SA                                                             80                                                                      * all dwellings, s.a.
                                                                                                            30                                                                                              30
       70                                                         Qld       WA        Tas             70
       60                                                                                             60    20                                                                                              20
       50                                                                                             50
                                                                                                            10                                                                                              10
       40                                                                                             40
       30                                                                                             30     0                                                                                              0
       20                                                                                             20
                                                                                                           -10                                                                                              -10
       10                                                                                             10
            Sources: ABS, Westpac Economics                                                                                                                      Sources: CoreLogic, Westpac Economics
        0                                                                                             0    -20                                                                                              -20
        Apr-03          Apr-09          Apr-15 Apr-03              Apr-09             Apr-15                 May-06      May-08       May-10         May-12      May-14        May-16            May-18

       Chart 5.                                                                                            Chart 6.

            Non-residential building approvals lift                                                              Public construction: expanding work pipeline

            $bn                                    Private: 12 month sum                        $bn              $bn                        Non-residential building + infrastructure                 $bn
       12                                                                                             12   16                                                                                               6
                    NSW                                           Australia: +12%yr
                                     +11%yr
                    Vic                                                                                    14          NSW        Qld       Vic                     WA           SA            Tas
       10                                                                                             10                                                                                                    5
                    SA                                            WA         Qld
                                                                                                           12
                                                                                            +1%yr
        8                                                                                             8                                                                                                     4
                                                                                                           10
        6                                                                                             6     8                                                                                               3
                                       +23%yr
                                                                                                            6
        4                                                                                             4                                                                                                     2
                                          +22%yr
                                                                                                            4
        2                                                                                             2                                                                                                     1
                                                                                            +5%yr           2
                                                          Sources: ABS, Westpac Economics                                  Sources: ABS, Westpac Economics
        0                                                                                             0     0                                                                                               0
        Apr-08                  Apr-14               Apr-08                 Apr-14                          Dec-07        Dec-11          Dec-15 Dec-07             Dec-11             Dec-15

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
                                                                                                                                                                                                                7
Westpac Coast-to-Coast June 2018

Employment and activity: by state

       Chart 1.                                                                                   Chart 2.

             NSW: jobs & household demand                                                               Victoria: jobs & household demand

             % ann                                                                % ann                 % ann                                                               % ann
              Sources: ABS, Westpac Economics
                                                                                             6                                                                                           6
        8                                                                  quarter average
                                                                                                   8     quarter
                                                                                                         average
                                                                                                                                                            Jobs, latest:
                                                                                                                                                            Q2(e) 2.0%yr

        6                                                                                    4     6                                                                                     4

        4                                                                                          4
                                                                                             2                                                                                           2
        2                                                                                          2

        0                                                                                    0     0                                                                                     0
                                                                          Jobs, latest:
        -2                                                                Q2(e) 3.4%yr             -2                        Household demand, adv 2 qtrs, lhs
                            Household demand, adv 2 qtrs, lhs                                -2                                                                                          -2
        -4                                                                                         -4                        Jobs, qtr avg, rhs
                            Jobs, qtr avg, rhs                                                                                                                         Sources: ABS,
                                                                                                                                                                   Westpac Economics
        -6                                                                                   -4    -6                                                                                    -4
        Mar-94       Mar-98        Mar-02       Mar-06   Mar-10   Mar-14          Mar-18           Mar-94          Mar-98     Mar-02      Mar-06   Mar-10   Mar-14          Mar-18

       Chart 3.                                                                                   Chart 4.

             Qld: jobs & household demand                                                               WA: jobs & household demand
             % ann                                                                % ann                 % ann                                                               % ann
       12                                                                                    8    16                                                                                     8
             Sources: ABS, Westpac Economics                               quarter average
                                                                                                        Sources: ABS, Westpac Economics                                quarter average
       10                                                         Jobs, latest:
                                                                  Q2(e) 2.8%yr
                                                                                             6    12                                                                                     6
        8                                                                                                                                                             Jobs, latest:
                                                                                                                                                                      Q2(e) 1.5%yr
        6                                                                                    4
                                                                                                   8                                                                                     4
        4
                                                                                             2
        2                                                                                          4                                                                                     2
        0                                                                                    0
                                                                                                   0                                                                                     0
        -2
                      Household demand, adv 2 qtrs, lhs                                      -2
        -4            Jobs, qtr avg, rhs * smoothed                                                -4                                                                                    -2
                                                                                                                     Household demand, adv 2 qtrs, lhs
        -6                                                                                   -4                      Jobs, qtr avg, rhs
        Mar-94       Mar-98        Mar-02       Mar-06   Mar-10   Mar-14          Mar-18           -8                                                                                    -4
                                                                                                   Mar-94          Mar-98     Mar-02      Mar-06   Mar-10   Mar-14          Mar-18

       Chart 5.                                                                                   Chart 6.

             SA: jobs & household demand                                                                Tasmania: jobs & household demand
             % ann                                                                % ann                 % ann                                                               % ann
        8                                                                                    5    10                                                                                     6
              Sources: ABS, Westpac Economics                              quarter average              Sources: ABS,
        6                                                                                    4     8    Westpac Economics

                                                                                             3                                                                                           4
                                                                                                   6
        4
                                                                                             2     4
                                                                                                                                                                                         2
        2                                                                                    1     2
        0                                                                                    0     0                                                                                     0
        -2                                                                                   -1    -2
                                                                                             -2                                                                                          -2
                                                                                                   -4
        -4
                              Household demand, adv 2 qtrs, lhs                              -3    -6                                                                 Jobs, latest:
                                                                           Jobs, latest:                                      Household demand, adv 2 qtrs, lhs                          -4
        -6                    Jobs, qtr avg, rhs                           Q2(e) 2.8%yr
                                                                                             -4    -8    quarter
                                                                                                                                                                      Q2(e) 0.6%yr

                                                                                                         average
                                                                                                                              Jobs, qtr avg, rhs
        -8                                                                                   -5   -10                                                                                    -6
        Mar-94       Mar-98        Mar-02       Mar-06   Mar-10   Mar-14          Mar-18            Mar-94         Mar-98    Mar-02       Mar-06   Mar-10   Mar-14          Mar-18

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
8
Westpac Coast-to-Coast June 2018

Employment by industry: NSW & Victoria

    The labour markets of NSW and Victoria experienced                                                Victoria is experiencing well above trend population
    robust employment gains during 2017 and into 2018,                                                growth, at 2.3% in 2017 and a cumulative increase of 9.5%
    consistent with buoyant economic conditions.                                                      over the past four years. This has been associated with
                                                                                                      sustained strength in employment, which increased by
    In NSW, employment surged 3.7% in 2017, in part a catch-                                          2.8% in 2017 and climbed 13.0% over the past four years.
    up following a gain of only 0.3% in 2016, which represented                                       Momentum has continued into 2018, with jobs growth
    a significant undershoot, impacted by uncertainty around                                          running at 2.1% annualised.
    the July 2016 Federal election. In 2018, jobs growth to date
    is running at a still above par 1.9% annualised.                                                  Construction is again a stand-out, boosted by public
                                                                                                      infrastructure projects, with employment in the
    By industry, strength is reasonably broadly based.                                                sector jumping 24% since the end of 2016. Hospitality
    Health and education are advancing at a brisk pace,                                               employment has also had a stellar run, expanding by 15%
    following a temporary consolidation in health during                                              since the end of 2015, in response to strong population
    2016. Construction employment has leapt 23% since the                                             growth and with service exports (both tourism and
    start of 2016 as work in the sector expands, led by public                                        education) a growth engine. The health sector, as evident
    infrastructure projects. There are positive spill-over effects                                    across the nation, is a key jobs creator, while professional
    to sectors such as manufacturing.                                                                 services is up strongly over the past year, up 8%.

       Chart 1.                                                                                            Chart 2.

            NSW: employment by sector                                                                            Victoria: employment by sector

                                                                         annual change, ’000                                                                              annual change, ’000
                        Retail                                                                                          Construction
           Health & education                                                                                    Leisure & hospitality                                                    Sources:
                                                                                                                                                                                             ABS,
                 Construction                                                                                    Wholesale & transp.                                                      Westpac
                                                                                                                                                                                        Economics
         Finance & real estate                                                                                     Business services
                Manufacturing                                                                                             Agriculture
          Leisure & hospitality                                                                                        Manufacturing                                         Q1, Q2 '17
                                                                             Q1, Q2 '17
                      Utilities                                                                                                Retail
                                                                                                                                                                             Q1, Q2 '18
          Wholesale & transp.                                                Q1, Q2 '18                                       Mining
            Business services                                                                                                Utilities
                       Mining                                                         Sources:                  Finance & real estate
                                                                                         ABS,
                   Agriculture                                                        Westpac                            Government
                  Government                                                        Economics                     Health & education
                                       -30 -20 -10      0      10 20 30 40 50 60                                                         -30 -20 -10 0 10 20 30 40 50 60 70
                                                change in employment                                                                               change in employment

       Chart 3.                                                                                            Chart 4.

            NSW employment by sector                                                                             Victoria employment by sector

            ppts                  Contributions to yr end growth*                      ppts                       ppts              Contributions to yr end growth*                        ppts
             Goods prod'n, distb'n            Education, health, gov't                                      5             Goods prod'n, distb'n           Education, health, gov't                   5
        5                                                                                        5                        Business services               Consumer * smoothed
             Business services                Consumer      * smoothed
                                                                                                            4                                                                                        4
        3                                                                                        3          3                                                                                        3

                                                                                                            2                                                                                        2
        1                                                                                        1
                                                                                                            1                                                                                        1

                                                                                                            0                                                                                        0
       -1                                                                                        -1
                                                                                                           -1                                                                                        -1
            Sources: ABS; Westpac Economics                                                                                                                       Sources: ABS; Westpac Economics
       -3                                                                                        -3        -2                                                                                        -2
        Jun-08          Jun-10           Jun-12        Jun-14            Jun-16       Jun-18                Jun-08         Jun-10         Jun-12         Jun-14          Jun-16           Jun-18

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
                                                                                                                                                                                                          9
Westpac Coast-to-Coast June 2018

Employment by industry: Qld & WA

     The Qld jobs market enjoyed a hiring burst in 2017, with                                     Perhaps not surprisingly, in the mining state of WA the
     employment increasing by an exceptional 4.4%. This more                                      labour market also experienced a setback in 2016, with
     than corrected for a sizeable 1.1% decline in 2016. Recall                                   employment contracting by a sharp 2.3%. As commodity
     that at the start of 2016, commodity prices had slumped                                      prices rebounded it became clear that the cost cutting had
     to historic lows (a move that has subsequently been                                          been overdone. Employment jumped in 2017, up by 3.9%.
     reversed), squeezing mining sector cash flows and denting                                    However, it has been a soft start to 2018, with employment
     revenue for the state government. Over the initial months                                    down by 0.2% over the initial five months.
     of 2018, the jobs market has cooled, with employment
     increasing at a 1.0% annualised pace.                                                        By industry, employment strength in 2017 was
                                                                                                  particularly evident in the health and education sectors,
     The key health sector has contributed to the recent                                          while agriculture enjoyed a better year. Construction
     employment profile for Qld, with weakness in 2016                                            employment advanced in 2017, as work on the remaining
     followed by a sharp surge in 2017. Construction sector                                       gas projects nears completion. Hospitality employment
     employment rebounded sharply in 2017, with a diminished                                      levels continue to trend higher. In 2018, employment
     drag from the mining investment cycle. The agriculture                                       conditions have been mixed by industry, with a pull-back
     sector also had a good year in 2017. While in 2018, the                                      evident across construction and retail, partially offset by a
     softer tone is largely centred on the consumer sectors.                                      turnaround in mining and manufacturing.

       Chart 1.                                                                                        Chart 2.

            Queensland: employment by sector                                                                Western Australia: employment by sector
                                                                    annual change, ’000                                                                               annual change, ’000
           Health & education                                                                             Health & education
                Manufacturing                                                                                  Manufacturing
            Business services                                                                                         Mining
                        Retail                                                                                   Government
                   Agriculture                                                                                       Utilities
                      Utilities                                          Q1, Q2 '17                               Agriculture                                                  Q1, Q2 '17
                       Mining                                            Q1, Q2 '18                      Leisure & hospitality                                                 Q1, Q2 '18
          Wholesale & transp.                                                                              Business services
                 Construction                                                                                   Construction
         Finance & real estate                                                    Sources:
                                                                                                        Finance & real estate
                                                                                                                                                                                       Sources:
          Leisure & hospitality                                                      ABS,                Wholesale & transp.                                                      ABS, Westpac
                                                                                  Westpac                                                                                           Economics
                  Government                                                    Economics                              Retail
                                      -30 -20 -10 0        10 20 30 40 50 60 70                                                  -20     -10         0           10       20       30        40
                                                change in employment                                                                        change in employment

       Chart 3.                                                                                        Chart 4.

            Qld employment by sector                                                                        WA employment by sector

            ppts                  Contributions to yr end growth*                     ppts                  ppts             Contributions to yr end growth*                            ppts
        6                                                                                    6
                      Goods prod'n, distb'n             Education, health, gov't                        8              Goods prod'n, distb'n             Education, health, gov't                 8
        5                                                                                    5
                      Business services                 Consumer * smoothed                                            Business services                 Consumer          * smoothed
        4                                                                                    4          6                                                                                         6
        3                                                                                    3
                                                                                                        4                                                                                         4
        2                                                                                    2
        1                                                                                    1          2                                                                                         2
        0                                                                                    0          0                                                                                         0
       -1                                                                                    -1
                                                                                                       -2                                                                                         -2
       -2                                                                                    -2
            Sources: ABS; Westpac Economics                                                                                    Sources: ABS; Westpac Economics
       -3                                                                                    -3        -4                                                                                         -4
        Jun-08          Jun-10           Jun-12        Jun-14          Jun-16      Jun-18               Jun-08      Jun-10         Jun-12           Jun-14             Jun-16           Jun-18

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
10
Westpac Coast-to-Coast June 2018

Employment by industry: SA & Tasmania

    South Australia's labour market moving broadly sideways                                          Tasmania's labour market appears to run 'hot and cold', as
    through the five years 2011 to 2015, impacted by structural                                      suggested by the official data - although we caution about
    headwinds, with employment up only 0.8% over the period.                                         larger measurement errors for a small economy. Conditions
    Since then, employment has trended higher, up 0.9% in                                            rebounded sharply in 2014, with employment surging 5.6%,
    2016 and increasing by 1.7% in 2017, with growth tracking                                        reversing losses experienced during the three previous
    at 3.8% annualised over the initial five months of 2018.                                         years. After a mixed performance over 2015 and 2016,
                                                                                                     the jobs market took a further step higher in 2017, with
    The health sector, as nationally, is a key growth sector,                                        employment surging 3.8%. So far in 2018, employment has
    with employment levels expanding to provide much                                                 declined by 0.4%, representing a modest consolidation.
    needed additional services. The construction sector has
    experienced a lift since the start of 2016, boosted by                                           Since the end of 2016, stronger economic conditions in
    the upswing in public infrastructure, again mirroring the                                        the state have driven employment gains across a range of
    national trend. Employment is also expanding in education                                        sectors, including: construction, boosted by a lift in home
    and household services, namely arts and recreation.                                              building and public investment; mining, supported by
    However, some headwinds persist, with manufacturing                                              higher prices and increased demand; household services,
    employment declining further over the past couple of                                             on stronger consumer spending and tourism; professional
    years impacted by the closure of the auto sector.                                                business services; and the health sector.

       Chart 1.                                                                                           Chart 2.

            South Australia: employment by sector                                                              Tasmania: employment by sector

                                                                        annual change, ’000                                                                                annual change, ’000
           Health & education                                                                               Leisure & hospitality
                   Agriculture                                                                                     Construction
          Leisure & hospitality                                                                            Finance & real estate
            Business services                                                                                            Mining
         Finance & real estate                                                                               Health & education
                  Government                                                  Q1, Q2 '17                                Utilities                                            Q1, Q2 '17
                      Utilities                                               Q1, Q2 '18                                  Retail
                                                                                                                                                                             Q1, Q2 '18
          Wholesale & transp.                                                                                       Government
                 Construction                                                                                        Agriculture
                        Retail                                                       Sources:               Wholesale & transp.                                                           Sources:
                                                                                        ABS,                                                                                                 ABS,
                       Mining                                                        Westpac                      Manufacturing                                                           Westpac
                Manufacturing                                                      Economics
                                                                                                              Business services                                                         Economics

                                       -12    -8     -4     0       4     8      12    16                                                 -3     -2   -1   0     1     2     3      4      5         6
                                                   change in employment                                                                               change in employment

       Chart 3.                                                                                           Chart 4.

            South Australia employment by sector                                                               Tasmania employment by sector

            ppts                  Contributions to yr end growth*                     ppts                     ppts                  Contributions to yr end growth*                       ppts
                          Goods prod'n, distb'n            Education, health, gov't
                                                                                                           8                 Goods prod'n, distb'n              Education, health, gov't
                                                                                                                                                                                                         8
        6                                                                                       6
                          Business services                Consumer * smoothed                             6                 Business services                  Consumer * smoothed                      6
        4                                                                                       4
                                                                                                           4                                                                                             4
        2                                                                                       2
                                                                                                           2                                                                                             2
        0                                                                                       0
                                                                                                           0                                                                                             0
       -2                                                                                       -2        -2                                                                                             -2
       -4                                                                                       -4        -4                                                                                             -4
            Sources: ABS; Westpac Economics                                                                    Sources: ABS; Westpac Economics
       -6                                                                                       -6        -6                                                                                             -6
        Jun-08          Jun-10           Jun-12        Jun-14           Jun-16        Jun-18               Jun-08          Jun-10           Jun-12         Jun-14          Jun-16         Jun-18

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
                                                                                                                                                                                                         11
Westpac Coast-to-Coast June 2018

NSW: construction and exports positives ...

            NSW state final demand: above trend growth                                                           The NSW economy has promptly returned to above trend
                                                                                                                 growth against the backdrop of a number of key positive
            % ann                                                                              % ann             fundamentals domestically and globally. However, there are
        8                                                                                                   8
                                                                                                                 headwinds, particularly around the consumer and housing.
                                                                  NSW              Australia
        6                                                                                                   6
                                                                                                                 State final demand grew by 3.7% over the past year and
                                                                                                                 averaged 3.4% growth over the past five years, a little in
        4                                                                                                   4    excess of the long-run average of 3.2%. A long overdue
                                                                                                                 upswing in home building activity, as well as buoyant public
        2                                                                                                   2    demand have been key growth drivers. This has led to a lift
             Historic avg:
             NSW, 3.1% ann
                                                                                                                 in business investment, which has further upside.
        0                                                                                                   0
                                                                                                                 A growing population, driven by net international migration,
            Sources: ABS, Westpac Economics
        -2                                                                                                  -2   is another key dynamic, although not to the extend evident
        Mar-02             Mar-06                  Mar-10                   Mar-14              Mar-18           in Victoria. NSW's population growth is 1.5% currently
                                                                                                                 and has averaged 1.5% over the five years 2013 to 2017,
                                                                                                                 well above the state's long-run average of 1.1%. With the
                                                                                                                 population increasing by 560,000 over this five year period,
                                                                                                                 and continuing to rise, there are growing demands to
                                                                                                                 expand the states infrastructure.

            NSW: contributions to state final demand                                                             The upswing in business investment is particularly apparent
                                                                                                                 in the construction segments. Private infrastructure
                                                                                                                 activity, which wound-down after a surge in mining sector
                                                                        1.5
                                                                                                 Sources:        projects, has rebounded by 80% over the past two years,
            Consumption                                                                             ABS,
                                                                           1.8                   Westpac         directly adding ½ppt to growth each year. The lift in work
                                                                                               Economics
                                                                                                                 has been centred on power generation and road projects.
                                                        0.4
                   Housing                        0.1
                                                                                    yr to Mar 17                 Private non-residential building activity is off the highs of
                                      -0.1
               Investment                                      0.9                  yr to Mar 18                 2016 but is set to expand. Approvals in the year to April
                                                                                                                 are 11% above a year ago and 25% above two years earlier,
                                                                  1.0
                      Public                                      1.0                                            with gains across offices, warehouses, and social building.

                                                                                         3.0
            Final demand                                                                         3.7             Consumer spending while solid remains constrained.
                                                                                                                 Spending averaged 2.9% growth over the past five years,
                                -1            0               1            2         3            4              including in 2017, boosted by rising population. On a per
                                                                   ppts                                          capita basis, spending is a more modest 1.4%, broadly in
                                                                                                                 line with the post GFC average for the state of 1.5% but
                                                                                                                 below the 1990s average of 1.9%. Weak wages growth, high
                                                                                                                 debt levels and now declining residential property prices
                                                                                                                 will likely weigh on the outlook.

            NSW economic performance & outlook                                                                   NSW’s economic outperformance, which began in 2014-15,
                                                                                                                 continued in 2017/18 with the state government expecting
            % chg                                                                              % chg             3% economic growth. Household consumption, public
        8                                                                                                   8
                                                                                                                 infrastructure, dwelling construction and service exports
                                         GSP                  State demand                       Gov't           have been the key drivers of this strong performance.
        6      GSP:
                                                                                                 f/cs       6
             2.6% avg.
                                                                                                                 The state government anticipates that output growth will
        4                                                                                                   4    moderate a notch to 2¾% in 2018/19 and 2019/20. The
                                                                                                                 turning down of dwelling construction and constrained
        2                                                                                                   2    household consumption are headwinds. Growth drivers
                                                                                                                 are expected to rotate towards business investment and
        0                                                                                                   0    more broad-based strength in exports. We are in broad
                                                                                                                 agreement with this view, and note a lower Australian
       -2
             Sources: ABS, NSW government, Westpac Economics
                                                                                                            -2   dollar would provide a further fillip to the export sector.
         '90/91     '94/95      '98/99        '02/03          '06/07      '10/11    '14/15 '18/19(f)
                                                                                                                 Public investment is likely to be more supportive of
                                                                                                                 activity over the coming two years, reflecting a lower
                                                                                                                 than expected outcome for 2017/18 and with the state
                                                                                                                 government continuing to announce projects, thereby
                                                                                                                 adding to the investment pipeline (see chart overleaf).

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
12
Westpac Coast-to-Coast June 2018

... housing slowing, constraining consumer

       Chart 1.                                                                                               Chart 2.

             NSW: a population surge                                                                                NSW public investment: budget forecasts

             % ann                                                                           % ann                  $bn                                                                                         $bn
                                                                                                              24                                                                                                      24
      2.2                                                                                               2.2             Budget 2014
                                                                                                                                                                                                           Nominal

                                   NSW: 1.5% (+117k yr)
                                                                                                                        Budget 2015
      1.8                          Aust: 1.6%                                                           1.8   20        Budget 2016                                                                                   20
                                                                                                                        Budget 2017
      1.4                                                                                               1.4             Budget 2018
                                                                                                              16                                                                                                      16
      1.0                                                                                               1.0
                                                                               NSW LR avg: 1.1%yr
                                                                                                              12                          Budget 2018                                                                 12
      0.6                                                                                               0.6                               Investment undershoot, 2017/18
                                                                                                                                          Upgrades outyears
                                                                                                                                                                                         Sources: budget papers,
             Sources: ABS, Westpac Economics                                                                                                                                                Westpac Economics
      0.2                                                                                               0.2     8                                                                                                    8
       Dec-85               Dec-93               Dec-01                 Dec-09                Dec-17           2012/13        2014/15             2016/17           2018/19             2020/21                 2022/23

       Chart 3.                                                                                               Chart 4.

             NSW consumer spending                                                                                  Dwelling prices: housing markets cool

             % ann                                                                           % ann                  %                      6mth growth rates, annualised                                         %
       10                                                                                               10    40                                                                                                      40
                           Labour income            real              Consumption:                                                   Sydney            Melbourne               Brisbane              Perth
                                                                      2018 Q1:     0.4%qtr, 2.9%yr
        8                                                             30 year avg: 3.0%yr
                                                                                                        8     30                                                                        * all dwellings, s.a.
                                                                                                                                                                                                                      30
                           Consumption
        6                                                                                               6
                                                                                                              20                                                                                                      20
        4                                                                                               4
                                                                                                              10                                                                                                      10
        2                                                                                               2
                                                                                                               0                                                                                                      0
        0                                                                                               0
                                   LR avg: 3.0%yr
        -2                                                                                              -2    -10                                                                                                     -10
                                    Sources: ABS, Westpac Economics                                                                                                        Sources: CoreLogic, Westpac Economics
        -4                                                                                              -4    -20                                                                                                     -20
        Mar-98         Mar-02            Mar-06             Mar-10           Mar-14           Mar-18            May-06      May-08        May-10          May-12           May-14        May-16            May-18

       Chart 5.                                                                                               Chart 6.

             New dwelling activity moderating                                                                       NSW: non-res’ building approvals climb
             % ann                                                                           % ann                  $bn                                   12 month sum                                          $bn
                                                                                                               6                                                                                                      16
       60                                 New dwelling investment (lhs)                 # smoothed      60                              Private
                                                                                                                                                                           Public       Private
                                                                                                                            Social
                                          Approvals, adv 2qtrs# (rhs)                                                                                                      Total                +12%yr
                                                                                                                                                                                                                      14
                                                                                                               5            Retail
       40                                                                                               40                                                                                                            12
                                                                                                                            Offices
                                                                                                               4
       20                                                                                               20                                                                                                            10
                                                                                                               3                                                                                                      8
        0                                                                                               0
                                                                                                                                                                                                          +11%yr
                                                                                                                                                                                                                      6
      -20                                                                                               -20    2                                                                                  +22%yr*
                                                                                                                                                                                                                      4
      -40                                                                                               -40    1
                                                                                                                                                                                                                      2
                                                                      Sources: ABS, Westpac Economics
                                                                                                                    Sources: ABS, Westpac Economics                                        * Gains led by ed’n
      -60                                                                                               -60    0                                                                                                      0
        Mar-98         Mar-02           Mar-06             Mar-10         Mar-14           Mar-18              Apr-08                  Apr-14                 Apr-08                    Apr-14

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
                                                                                                                                                                                                                      13
Westpac Coast-to-Coast June 2018

Victoria: capacity-building investment ...

            Victorian state demand: well above trend growth                                                       Victoria's outperformance has carried into early 2018. At just
                                                                                                                  in excess of 3%yr, output growth has been robust (albeit
            %ann                                                                               %ann               flattered by brisk population growth) and notably stronger
       10                                                                                                    10   than the rest of Australia. The state's growth over the last
        8                                                                                                    8    four years has been 0.7ppts above that seen nationally.
        6                                                                                                    6
                                                                                                                  A sustained migration-led surge in population growth
        4                                                                                                    4
                                                                                                                  continues to be the main driver with the state's education
        2                                                                                                    2    and wider services sector key supports. Population growth
        0                                                                                                    0    is 2.3% currently, well above the national figure of 1.6%.
       -2                                                                                                    -2
                                                                                                                  Having already substantially boosted housing construction,
       -4                   Victoria             Australia                                                   -4   the population surge is seeing a broader lift in infrastructure
                                                                     Sources: ABS, Westpac Economics
       -6                                                                                                    -6   and capacity-building investment. An expected moderation
       Mar-94       Mar-98       Mar-02          Mar-06          Mar-10       Mar-14           Mar-18             in housing activity now looks likely to come through a little
                                                                                                                  later in the piece, although prices have softened notably.

                                                                                                                  Vic state demand growth picked up sharply again in the
                                                                                                                  March quarter, a 1.9% jump taking the annual rate to 4.9%,
                                                                                                                  slightly above the 4.5% average over the past three years.

            Vic: contributions to state final demand                                                              Victorian consumer spending is up 3.9% over the past year,
                                                                                                                  notwithstanding a modest rise of 0.5% in Q1. Labour income
                                                                                                                  gains remain supportive. Jobs growth having eased back from
                                                                   2.0                    Sources: ABS,           the red-hot 4.4% increase in 2016, is robust, at 2.8% for 2017
            Consumption                                                               Westpac Economics
                                                                     2.3                                          and running at 2.1% annualised over the initial months of 2018.
                                                   0.5
                    Housing         -0.2                                                                          The state's housing market has continued to cool, growth in
                                                                                    yr to Mar 17
                                                     0.7
                                                                                                                  Melbourne dwelling prices slowing to just over 1%yr in June
               Investment                                                           yr to Mar 18                  from a double-digit pace a year ago. Auction markets point
                                                     0.8
                                                                                                                  to a further softening with clearance rates moving below
                     Public                                1.3                                                    average in June. Although 'wealth effect' boosts look to
                                                                  2.0
                                                                                                                  have been muted through the price surge, the turnaround is
                                                                                            4.6                   likely to weigh on consumer demand at the margin.
            Final demand                                                                      4.9

                               -1.0        0.0      1.0          2.0   3.0          4.0     5.0        6.0        Business investment while choppy is broadly supportive, up
                                                                  ppts                                            7.3% over the past year. The work pipelines look positive
                                                                                                                  for both non-residential building and private infrastructure
                                                                                                                  work, consistent with the demands of a fast growing
                                                                                                                  population. Business surveys indicate capacity utilisation is
                                                                                                                  somewhat tighter in Victoria than the rest of Australia.

            State government infrastructure investment                                                            Government spending has been a strong support for
                                                                                                                  activity over the last year. Total spending rose 9.8% over
            $bn                                                                                    $bn            the year to March, adding 2ppts to state final demand – a
       15                                                                                                    15
              Sources: ABS, Vic Gov't, Westpac Economics                         Gov't fcsts                      bigger contribution than business and housing investment
                                                                                                                  combined. Public investment has been particularly strong,
       12                                                                                                    12   surging 23%yr.

        9                                                                                                    9    The public sector will remain a strong support for both
                                                                                                                  activity and employment through 2018/19. The 2018-19
        6                                                                                                    6    Victorian state budget showed public infrastructure work
                                                                                                                  is set to rise further over the next year before winding
        3                                                                                                    3    down. That wind down may not eventuate if projects such
                                                                                                                  as the proposed airport rail link go ahead – the Federal
        0                                                                                                    0    Budget earmarked $5bn for this contingent on a matching
            10/11        12/13             14/15           16/17           18/19f         20/21f                  contribution from the Victorian state government.

                                                                                                                  The state continues to run a solid operating surplus,
                                                                                                                  maintaining its 'AAA' rating. Budget measures centred on
                                                                                                                  health and education, with some funding for road upgrades.
                                                                                                                  A state election is due to be held by the end of 2018.

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
14
Westpac Coast-to-Coast June 2018

... lifts as housing activity slows

       Chart 1.                                                                                           Chart 2.

            Vic household income & spending well balanced                                                       Vic labour market
            %ann                                                                      %ann                      % ann                                                                               %
       10                                                                                           10     6                                                                                             13
                     Labour income              Consumption     *real                                                Vic (lhs)      Aust. (lhs)          Unemploy rate, Vic (rhs)            Vic Govt
        8                                                                                           8      5                                                                                    fcs
                                                                                                                                                                                                         12
                                                                                                           4                                                                                             11
        6                                                                                           6
                                                                                                           3                                                                                             10
        4                                                                                           4      2                                                                                             9
        2                                                                                           2      1                                                                                             8
        0                                                                                           0      0                                                                                             7
                                                                                                           -1                                                                                            6
       -2                                                                                           -2
                                                                                                           -2                                                                                            5
       -4                                                                                           -4     -3                                                                                            4
             Sources: ABS, Westpac Economics                                                                     Sources: ABS, Westpac Economics
       -6                                                                                           -6     -4                                                                                            3
       Mar-06              Mar-09              Mar-12         Mar-15               Mar-18                  May-95       May-99          May-03          May-07       May-11      May-15        May-19

       Chart 3.                                                                                           Chart 4.

            Vic housing construction downturn delayed                                                           Melbourne house prices

            %ann                                                                      %ann                      % ann                                                                         % ann
                                                                                                          30                                                                                             30
                                                                                                                        Melbourne              capital cities avg.
       60                    New dwelling activity        Approvals, adv 2qtrs                      60

       40                                                                                           40    20                                                                                             20

       20                                                                            latest excl.   20
                                                                                     ‘large               10                                                                                             10
                                                                                     projects’

        0                                                                                           0
                                                                                                           0                                                                                             0
      -20                                                                                           -20
                                                              Sources: ABS, Westpac Economics                   Sources: CoreLogic, Westpac Economics
      -40                                                                                           -40   -10                                                                                            -10
        Mar-94 Mar-98 Mar-02 Mar-06 Mar-10 Mar-14 Mar-18                                                    Jun-98          Jun-02             Jun-06             Jun-10       Jun-14           Jun-18

       Chart 5.                                                                                           Chart 6.

            Vic’s non-res construction pipeline                                                                 Vic population growth: 2.3%yr currently

            $bn          non-res. building              infrastructure                     $bn                  ’000s                                                                          ’000s
        9                                                                                           9     100                                                                                            100
                    Approvals                                                                                        Net overseas migration*
                                                        Commencements
        8           Work done                                                                       8                Natural increase
                                                        Work done                                          80                                                                                            80
                                                                                                                     Net interstate migration*
        7           Yet to be done                                                                  7
                                                        Yet to be done                                           *Westpac estimate including Census discrepancy
                                                                                                           60                                                                                            60
        6   Sources:                                                                                6
            ABS,
        5   Westpac                                                                                 5      40                                                                                            40
            Economics
        4                                                                                           4      20                                                                                            20
        3                                                                                           3
                                                                                                            0                                                                                            0
        2                                                                                           2
        1                                                                                           1     -20                                                                                            -20
                                                                                                                                                                       Sources: ABS, Westpac Economics
        0                                                                                           0     -40                                                                                            -40
        Dec-95       Dec-03         Dec-11       Dec-95       Dec-03        Dec-11                          Dec-85               Dec-93                 Dec-01             Dec-09              Dec-17

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
                                                                                                                                                                                                         15
Westpac Coast-to-Coast June 2018

Queensland: government's aspirations ...

             Qld domestic demand has rebounded                                                                     The past two years have seen Queensland's fortunes
                                                                                                                   turnaround. Having declined by a cumulative 6.5% over
             % ann                                                                          % ann                  the two years to December 2015, domestic demand in Qld
       15                                                                                                     15
                                                                                                                   consequently rose by 3.5%yr in 2016 then 2.8%yr in 2017. A
                                                               Qld             Australia
       12                                                                                                     12   further 0.5% gain in Q1 2018 essentially rubbed out the last
        9                                                                                                     9    of the 2014/15 decline.
        6                                                                                                     6
                                                                                                                   Public demand has been particularly important in this
        3                                                                                                     3    resurgence, with investment in infrastructure and services
        0                                                                                                     0    undertaken by the Government becoming a leading light
                                                                                                                   for the growth agenda. Highlighting this, at March 2018,
       -3                                                                                                     -3
                                                                                                                   public demand was 5.0% higher over the year.
       -6                                                                                                     -6
             Sources: ABS, Westpac Economics

       -9                                                                                             -9           The recent 2018–19 Budget emphasises that the public
       Mar-98           Mar-02            Mar-06            Mar-10           Mar-14             Mar-18             sector will remain a strong positive for the state going
                                                                                                                   forward, with $46bn in infrastructure spending slated for
                                                                                                                   the four years to 2021/22, along with continued investment
                                                                                                                   in front-line essential services – health and education.

             Qld: contributions to state final demand                                                              The intent of the Qld government, to build an economy
                                                                                                                   fit for the needs of tomorrow, looks to be bearing fruit.
                                                                                                                   Having fallen to a multi-decade low of 1.2%yr at September
                                  Sources: ABS,
                                                                            1.1                                    2015, population growth has since rallied back to 1.7%yr
             Consumption          Westpac
                                  Economics.                                 1.3                                   at September 2017. This result has come about owing to a
                                                                                                                   resurgence in both international and interstate migration.
                                                     -0.4
                   Housing                              -0.2
                                                                                                                   Another key support for this turn in migration has been
                                                                           1.1
               Investment                yr to Mar 17                                                              that those who desire employment have been able to
                                                                        0.8
                                         yr to Mar 18                                                              find it easily. Since November 2016, Qld's unemployment
                                                                            1.1
                      Public                                                 1.2
                                                                                                                   rate has been broadly unchanged while the share of the
                                                                                                                   population employed has risen by 1.5ppts (at May 2018).
                                                                                                3.0
             Final demand                                                                        3.1
                                                                                                                   The strength in employment growth over this period has
                                -3        -2        -1          0       1          2        3             4        fed through to incomes. Despite persistent weakness
                                                               ppts                                                in hourly wage rates (as is the case elsewhere in the
                                                                                                                   nation), annual growth in Qld real labour incomes have
                                                                                                                   risen sharply, from –0.9%yr at Q2 2017 to 3.7%yr at Q1
                                                                                                                   2018. While this rate of growth won't be sustained, further
                                                                                                                   above-average gains are possible – if job growth persists.

             Qld economic performance & outlook                                                                    Population growth; incomes; housing affordability; and
                                                                                                                   confidence are all supportive of a lift in consumption
             % chg                                                                           % chg                 growth from the current sub-par 2.4%yr. Housing is more
       10                                                                                                     10
                                                                                                                   of an open question however, with migration supportive,
        8          GSP       State demand                                              GSP:                   8    but offset by excess supply in key metro markets like
                                                                                       3.9% avg                    Brisbane. The full effect of macroprudential reforms is also
        6                                                                                                     6    yet to be felt.
        4                                                                                                     4
                                                                                                                   On business investment, the Australian dollar and external
        2                                                                                                     2    demand remain supportive of tourism and education;
        0                                                                                                     0    and if the consumer firms, then so should investment in
                                                                                                  Gov't            related sectors. As has been the case across the nation,
        -2                                                                                        f/cs        -2   equipment investment in these sectors has been a key
                Sources: ABS, Qld government, Westpac Economics.
        -4                                                                                                    -4   area of weakness, even as engineering and non-residential
          '90/91    '94/95      '98/99         '02/03    '06/07       '10/11       '14/15                          construction grew at a robust pace (11%yr and 8.0%yr
                                                                                                                   respectively). For Qld, nothing is guaranteed, but the state
                                                                                                                   is in a much stronger position today than at any point since
                                                                                                                   the heady days of the mining investment boom.

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
16
Westpac Coast-to-Coast June 2018

... strong, set to buoy optimism and growth

       Chart 1.                                                                                                Chart 2.

             Qld net migration has rallied off historic lows                                                        Qld: employment’s share of population up

             ’000s                                                                             ’000s                %                                                                               %
       70                                                                                                70
                             Natural increase                                                                       Sources: ABS, Westpac Economics
                                                                                                               65                                                                                         10
       60                    Net overseas migration                                                      60
                             Net interstate migration
       50                                                                                                50    63                                                                                         8

       40                                                                                                40    61                                                                                         6
       30                                                                                                30
                                                                                                               59                                                                                         4
       20                                                                                                20
                                                                                                               57               employment to population ratio*, lhs                                      2
       10                                                                                                10
                                             Sources: ABS, Westpac Economics
                                                                                                                                unemployment rate*, rhs                  * trend

        0                                                                                                0     55                                                                                         0
        Dec-85               Dec-93                Dec-01                Dec-09                Dec-17           Feb-98         Feb-02           Feb-06              Feb-10            Feb-14     Feb-18

       Chart 3.                                                                                                Chart 4.

             Labour incomes have gained as a result                                                                 Qld dwelling approvals remain at elevated level

             % ann                                                                           % ann                  ’000 mth, annls’d                                                 ’000 mth, annls’d
       12                                                                                                14    60                                                                                         60
                                                                                                                     6 month sum
                                                                  Labour income                                                                  Total              Houses
       10                                                                                                12
                                                                  Consumption *real                            50                                                      L/R avg: 37k
                                                                                                                                                                                                          50
        8                             period                                                             10
                                      averages
                                                                                                         8     40                                                                                         40
        6
                                                                                                         6
        4                                                                                                      30                                                                                         30
                                                                                                         4
        2
                                                                                                         2     20                                                                                         20
        0                                                                                                0                                             RBA easing
                                                                                                               10                                      cycles                                             10
        -2                                                                                               -2
              Sources: ABS, Westpac Economics.                                                                      Sources: ABS, RBA, Westpac Economics
        -4                                                                                               -4    0                                                                                          0
         Mar-05 Mar-07 Mar-09 Mar-11 Mar-13 Mar-15 Mar-17                                                      Jan-98          Jan-02            Jan-06             Jan-10            Jan-14     Jan-18

       Chart 5.                                                                                                Chart 6.

             Consumer & business confidence positive                                                                Qld business investment: in modest uptrend

             index          consumer                            business                    net bal.                $bn                                                                            $bn
      130                                                                                                30
                                                                                                                    Sources: ABS, Westpac Economics.          Rose 179% from
                                                                                                               10                                             end-2010 to                                 10
      120                                                                                                20                                                   March 2013;
                                                                                                                              Equipment                       down 69% since.
      110                                                                                                10     8                                                                                         8
                                                                                                                              Non-residential building
      100                                                                                                0      6             Infrastructure                                                              6
       90                                                                                                -10
                                                                                                                4                                                                                         4
       80                                                                                                -20
                         Qld          Australia                                                                 2                                                                                         2
       70                 smoothed                                                                       -30
                                                                               Sources: Westpac-MI,
                                                                               NAB, Westpac Economics.
       60                                                                                                -40   0                                                                                       0
         2009              2013              2017 2008              2011          2014          2017           Mar-98          Mar-02            Mar-06              Mar-10           Mar-14      Mar-18

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
                                                                                                                                                                                                          17
Westpac Coast-to-Coast June 2018

Western Australia: recovery still anaemic ...

             WA state demand: deep contraction ends                                                       With a large multi-year decline in mining investment having
                                                                                                          finally largely run its course, the WA economy has swung
             % ann                                                                         % ann          into recovery over the last year although growth remains
       20                                                                                            20
                       WA              Australia                                                          anaemic and momentum is 'patchy'.
       16                                                                                            16
       12                                                                                            12   On the positive side, the turnaround is already lifting
                                                                                                          household labour incomes, a welcome turnaround from four
        8                                                                         WA govt fcs*       8
                                                                                                          years of decline. Key commodity prices have held up better
        4                                                                                            4    than expected and mining investment is also showing some
        0                                                                                            0    slight positives, albeit nothing like the boom years.
        -4                                                                                           -4
                                                                                                          Against this, the latest labour market data suggests
        -8   Sources: WA 2018-19 Budget,
                                                                                                     -8   a strong initial rebound in 2017 has given way to a
             ABS, Westpac Economics                                   * year average
      -12                                                     -12                                         consolidation early in 2018, while housing markets have
        Mar-92 Mar-96 Mar-00 Mar-04 Mar-08 Mar-12 Mar-16 Mar-20                                           yet to stabilise. Other drivers such as population flows and
                                                                                                          fiscal policy are presenting less of a headwind to growth
                                                                                                          but are not providing much in the way of support, although
                                                                                                          public spending has been a positive for state final demand
                                                                                                          over the last year.

             WA: contributions to state final demand                                                      WA saw a pull-back in state demand in Q1 following three
                                                                                                          quarters of solid gains – the 1.1% decline reversing over half
                                                                                                          of the 1.9% gain over the previous nine months. Annual
                                   Sources: ABS, Westpac Economics.
                                                                                     0.2                  growth remains slow at 0.8%yr but markedly better than
             Consumption
                                                                                           0.9            the average 3% contraction seen over 2013–17.
                                                  yr to Mar 17
                                                                       -1.2
                    Housing                       yr to Mar 18                       0.0                  Some of the weakness in Q1 may be a tail-end effect from
                                                                                                          the wind-down in mining investment as work on key gas
                                                 -6.0
                Investment                                            -1.1                                projects nears completion. Total business investment
                                                                                                          contracted 5.0% in the quarter and is still contracting in
                                                                                       0.3
                       Public                                                             0.9
                                                                                                          annual terms (–5.6%yr). With little support from other
                                                                                                          sectors, variations in mining investment still dominate.
             Final demand                     -6.7
                                                                                           0.8
                                                                                                          Despite the weak quarter, the forward view is actually
                                -10         -8           -6     -4    -2         0               2        looking more positive. Key commodity prices have
                                                              ppts                                        continued to hold up, iron ore around US$65/t and energy
                                                                                                          prices generally firm. Notably, major producers have also
                                                                                                          greenlighted a few new iron ore projects in recent months
                                                                                                          although the scale is small compared to the boom years.

             WA economic performance & outlook                                                            Household consumption slipped 0.1% in Q1 although
                                                                                                          annual growth at 1.7% is still much firmer than a year ago.
             % chg                                                                         % chg          Labour incomes have picked up strongly, tracking at
       16                                                                                            16
                       GSP             State demand                                                       4.6%yr. However, this is unlikely to sustain near term with
       12                                                                                            12
                                                                                                          employment consolidating early in 2018 suggesting the
               GSP:
             4.8% avg.                                                                                    strength in 2017 was an 'initial rebound'. The pass through
        8                                                                                  Gov't     8    to spending is also likely being muted by a rebuild in
                                                                                           f/cs
                                                                                                          savings after a large multi-year decline.
        4                                                                                            4
                                                                                                          Housing activity held flat over the year to March with any
        0                                                                                            0    uptick still looking some way off – approvals weakening
                                                                                                          again in recent months, and population flows still
       -4                                                                                            -4
                                                                                                          unsupportive. Perth dwelling prices have continued to slip
       -8
             Sources: ABS, WA Gov't, Westpac Economics
                                                                                                     -8   lower albeit at a slightly slower pace.
         '90/91 '94/95 '98/99 '02/03 '06/07 '10/11 '14/15 '18/19(f)
                                                                                                          The 2018-19 WA state budget provided a rare upgrade to
                                                                                                          forecasts (albeit a small one). The state continues to chart
                                                                                                          a return to surplus by 2021 through expenditure restraint.
                                                                                                          Public infrastructure investment is continuing to rise though
                                                                                                          led by the METRONET rail project with spending likely to
                                                                                                          peak in the 2018-19 financial year.
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
18
Westpac Coast-to-Coast June 2018

... and patchy

       Chart 1.                                                                                      Chart 2.

            WA households: incomes improve                                                                 Jobs market: initial rebound?

            % ann                                                                    % ann                 % ann                                                                                   %
                                                                                                       8                                                                                                14
       15       labour income             period                                               15           Sources: ABS, Westpac Economics.                              *trend; ^year average

                consumption               averages                                                     6
       12                                                                                      12                                                                                                       12
             *real                                                                                                                                                                       WA Govt^
                                                                                                       4
        9                                                                                      9                                                                                                        10
                                                                                                       2
        6                                                                                      6
                                                                                                       0                                                                                                8
        3                                                                                      3
                                                                                                      -2
                                                                                                                                                                                                        6
        0                                                                                      0      -4            WA jobs (lhs)
       -3                                                                                      -3                   Aust jobs (lhs)                                                                     4
                                                     Mining boom     MkII                             -6
                                                          MkI                                                       Un. rate, WA (rhs)
            Sources: ABS, Westpac Economics
       -6                                                                                      -6     -8                                                                                                2
        Mar-92 Mar-96 Mar-00 Mar-04 Mar-08 Mar-12 Mar-16                                              May-90 May-94 May-98 May-02 May-06 May-10 May-14 May-18

       Chart 3.                                                                                      Chart 4.

            WA business investment                                                                         WA’s population growth

            $bn                                                                          $bn               % ann                                                                             % ann
       14                                                                                      14
                     equipment
                                                                                                     4.8        WA (0.8%yr, 21k)                                                                        4.8
                                                                                                                contrib. international migration (0.6ppts, 14k)
       12            non-residential building^                                                 12    4.2                                                                                                4.2
                                                                                                                contrib. inter-state migration (–0.5ppts, –13k)
                     engineering^                                                                    3.6        WA Govt Budget forecasts                                                                3.6
       10                                                                                      10
                                                                                                                Aust (1.6%yr)
               *real, new                                                                            3.0                                                                                  latest        3.0
                                                                                                                                                                                          qtr
        8      ^from Jun 2012, figures are                                                     8
                                                                                                     2.4                                                                                  ann’d         2.4
               estimates based on total                                                                                                                                                   pace
        6      non-residential construction                                                    6     1.8                                                                                                1.8
                                                                                                     1.2                                                                                                1.2
        4    Sources: ABS, Westpac Economics                                                   4
                                                                                                     0.6                                                                                                0.6
        2                                                                                      2
                                                                                                     0.0                                                                                                0.0
                                                                                                                                    Sources: ABS, Westpac Economics
        0                                                                                      0     -0.6                                                                                               -0.6
        Mar-96        Mar-00         Mar-04          Mar-08        Mar-12       Mar-16                 Dec-01           Dec-05                 Dec-09          Dec-13                Dec-17

       Chart 5.                                                                                      Chart 6.

            New home building: starting to stabilise                                                       House prices: Perth price declines moderate

            % ann                                                                    % ann                % ann                                                                              % ann
       80   Sources: ABS, Westpac Economics
                                                                                               60     40                                                                                                40
                                                                                                                                                                      Sources: ABS; Westpac Economics
                                                                                                      36       Perth                                                                                    36
       60                                                                                             32                                                                                                32
                                                                                               40              capital cities avg.
       40                                                                                             28                                                                                                28
                                                                                               20     24                                                                                                24
       20                                                                                             20                                                                                                20
                                                                                                      16                                                                                                16
        0                                                                                      0
                                                                                                      12                                                                                                12
      -20                                                                                              8                                                                                                8
                                                                                               -20     4                                                                                                4
      -40                                                                                              0                                                                                                0
                                         New dwelling activity (lhs)                           -40
      -60                                                                                             -4                                                                                                -4
                                         Approvals, adv 2qtrs# (rhs)        # smoothed                -8                                                                                                -8
      -80                                                                                      -60   -12                                                                                                -12
        Mar-98         Mar-02           Mar-06          Mar-10         Mar-14        Mar-18            Jun-98    Jun-02          Jun-06                  Jun-10               Jun-14           Jun-18

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
                                                                                                                                                                                                        19
Westpac Coast-to-Coast June 2018

South Australia: private spark necessary ...

            State final demand growth pulling back                                                              South Australia had a strong 2017, with annual growth of
                                                                                                                5.2%yr reported. However, half of this gain came in the
            % ann                                                                            % ann              first quarter, as major projects were completed. Since then,
                                                                                                                momentum has been less inspiring. Come Q1 2018, activity
        8                                        SA            Australia                                   8
                                                                                                                dipped 0.2%, bringing the annual rate back to a subdued
                                                                                                                2.1%yr, with weakness centred in private demand.
        6                                                                    Historic avg:                 6
                                                                             2.8% ann

        4                                                                                                  4
                                                                                                                Going forward, public demand is set to remain a key
                                                                                                                support for growth, with some major energy projects
        2                                                                                                  2
                                                                                                                beginning construction, including the Lincoln Gap Wind
                                                                                                                Farm and AGL’s Barker Inlet Power Station. However, state
        0                                                                                                  0
                                                                                                                demand cannot rely on public spending alone. As such, SA
                                                                                                                is also seeking to tap external demand. This is hallmarked
        -2
                  Sources: ABS, Westpac Economics.
                                                                                                           -2
                                                                                                                by an ambitious target for tourism expenditure of $8bn
        Mar-02            Mar-06                  Mar-10               Mar-14                  Mar-18           by 2020. Adelaide's universities also offer an opportunity
                                                                                                                to attract more education dollars, from interstate and
                                                                                                                offshore. Tourism and education gains would aid net
                                                                                                                migration – an area where SA continues to lag, particularly
                                                                                                                Vic and Qld – and potentially food and beverage exports.

            SA contributions to state final demand                                                              For private demand, new opportunities are certainly
                                                                                                                needed to reinvigorate growth as support for household
                                                                                                                demand from employment is abating. Employment gains
                                                                1.6
                                                                                                                started to slow towards the end of last year and peaked
            Consumption                                         1.5                                             in February 2018. The employment to population ratio has
                                                                                                                since fallen 0.6ppts to 63.3% at May 2018, though that is
                  Housing                              0.2                      yr to Mar 17
                                                      0.1                                                       above the 62.1% seen in early 2017.
                                                                                yr to Mar 18
              Investment                                                                                        Wage inflation weakness (seen across the country) had left
                                     -0.8                    1.6
                                                                                                                job gains as the driver of household income growth. Now
                    Public                                   1.1                                                that SA employment has stagnated, households’ spending
                                                               1.4
                                                                                                                power is under pressure. It is not surprising then that
                                 Sources: ABS,                                               4.5                private consumption only managed to eke out a small 0.2%
            Final demand         Westpac                               2.1
                                 Economics.                                                                     gain in Q1. Early signs for Q2 are not encouraging, with
                               -2                 0                2                4                  6        employment flat and nominal retail trade dipping 0.6% in
                                                                                               ppts             April.

                                                                                                                House price growth is also close to flat, 0.6%yr at May. Any
                                                                                                                remnants of a 'wealth effect' on consumption from past
                                                                                                                (moderate) gains are likely behind us.

            SA economic performance & outlook                                                                   Housing has also been a softer component of investment
                                                                                                                of late, falling 1.6% in Q1 (+1.6%yr) as new building reversed.
            % chg                                                                            % chg              Approvals had been more positive through 2017, but
        8                                                                                                  8
                                                                                                                meagre population growth is a significant headwind.
                                                               GSP           State demand
        6                                                                                                  6
             GSP:                                                                                               Business investment is also weak, down 2.5% in Q1 and
             2.1% avg                                                                          Gov't
                                                                                               f/cs             6.8% over the year. The aftereffects of major manufacturing
        4                                                                                                  4    closures are still being felt, as component suppliers adjust
                                                                                                                or shut. Yet there is still opportunity to be had. SA can now
        2                                                                                                  2    lay claim to being Australia’s first satellite manufacturer,
                                                                                                                with Italy’s SITAEL launching a subsidiary in Adelaide.
        0                                                                                                  0
                                                                                                                So, while public spending will continue to aid SA growth
                        Sources: ABS, SA government, Westpac Economics.
       -2                                                                                                  -2   for the foreseeable future, the state must make the best
         '90/91   '94/95       '98/99       '02/03       '06/07      '10/11      '14/15                         use of this investment by actively seeking out opportunities
                                                                                                                where their competitive advantage lay. Education; tourism;
                                                                                                                agriculture and niche manufacturing all hold promise, but
                                                                                                                require action. Only then will employment, household
                                                                                                                income and spending have an enduring foundation.

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
20
Westpac Coast-to-Coast June 2018

... if enduring robust growth to be seen

       Chart 1.                                                                                         Chart 2.

             South Australia: public investment strong                                                        Business investment: stable, outlook uncertain
             % ann               demand                     public investment       $bn qtr                   $bn                                                                                      $bn
                                                            General government         Sources:   2.5                Equipment *        * including computer software etc
                                                                                          ABS,          2.0                                                                                                    2.0
                                                                                       Westpac
       12                                                   Public corporations      Economics                       Non-residential building
                                                                                                  2.0
                                                                                                        1.6          Infrastructure                                                                            1.6
        6
                                                                                                  1.5
                                                                                                        1.2                                                                                                    1.2
        0
                                                                                                  1.0   0.8                                                                                                    0.8
                            * smoothed
       -6                                                                                         0.5
                                Private demand                                                          0.4                                                                                                    0.4
                                Public demand *
                                                                                                                                                                            Sources: ABS, Westpac Economics
      -12                                                                                         0.0   0.0                                                                                                 0.0
        Mar-97         Mar-05            Mar-13 Mar-93        Mar-01     Mar-09        Mar-17            Mar-98          Mar-02            Mar-06                Mar-10             Mar-14            Mar-18

       Chart 3.                                                                                         Chart 4.

             Adelaide house prices have little momentum                                                       Dwelling approvals drifting lower
             %                       6mth growth rates, annualised                           %                '000                                                                                     '000
                                                                                                        1.7                                                                                                    23
                      * all dwellings, annualised,                                                                           SA* (lhs)                 Australia* (rhs)
       30                                                                                         30                                                                                                           21
                      seasonally adjusted                                                               1.5
                                                                                                                            * smoothed, private

       20                                                                                         20                                                                                                           19
                                                                                                        1.3
                                                                                                                                                                                                               17
       10                                                                                         10    1.1
                                                                                                                                                                                                               15
                                                                                                        0.9
        0                                                                                         0                                                                                                            13
                                                                                                        0.7
                                                                                                                                                                                                               11
      -10                                                                                         -10
                                                                                                        0.5                                                                                                    9
                       Sydney               Melbourne         Adelaide            Perth
             Sources: ABS, CoreLogic, Westpac Economics                                                                                                                     Sources: ABS, Westpac Economics.
      -20                                                                                         -20   0.3                                                                                                 7
        May-10 May-11 May-12 May-13 May-14 May-15 May-16 May-17 May-18                                    Apr-98          Apr-02            Apr-06                Apr-10            Apr-14            Apr-18

       Chart 5.                                                                                         Chart 6.

             SA job surge topping out                                                                         Weak population growth a lasting concern

             % ann                                                                   % ann                    % ann                                                                                % ann
        8                                                                                         5     2.5                                                                                                    2.5
              Sources: ABS, Westpac Economics                                   quarter average               Sources: ABS, Westpac Economics

        6                                                                                         4
                                                                                                  3     2.0                              SA               Australia                                            2.0
        4
                                                                                                  2
        2                                                                                         1     1.5                                                                                                    1.5
        0                                                                                         0
        -2                                                                                        -1    1.0                                                                                                    1.0
                                                                                                  -2
        -4
                               Household demand, adv 2 qtrs, lhs                                  -3    0.5                                                                                                    0.5
        -6                                                                                                                                                                           regional migration
                               Jobs, qtr avg, rhs                                                 -4                                                                                 schemes expanded
        -8                                                                                        -5    0.0                                                                                                    0.0
        Mar-94       Mar-98         Mar-02         Mar-06   Mar-10     Mar-14         Mar-18             Dec-85              Dec-93                  Dec-01                    Dec-09                Dec-17

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that
the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these forecasts.
                                                                                                                                                                                                               21
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