The following is a summary of the Northern Territory’s (NT) economic outlook, as published in the Department of Treasury and Finance’s 2018-19 Budget Papers in May 2018. Where available, actual data for 2017-18 is included within Table 1.
All economies are subject to cyclical effects, with frequency, magnitude and length of time between periods of growth often linked to the size of the economy, structure and reliance on key industries, and vulnerability to external factors. As a small open economy heavily reliant on resources and historically driven by major projects, the economic cycles in the NT tend to be more pronounced than in other jurisdictions in Australia. Over the last 25 years, the NT has experienced growth cycles averaging six to seven years where expansionary economic conditions have been experienced. These expansionary cycles have been followed by periods of cyclical contraction.
The NT is currently transitioning through a downturn in the economic cycle, which is reflected in low growth across a number of key economic indicators. The NT’s gross state product (GSP), employment, population and consumer price index collectively provide an overview of the cyclical nature of the economy (Chart 1). The highly transient nature of the NT’s population is a significant factor in these movements, as economic and particularly employment conditions influence people to come to or leave the NT. Hence, population growth is generally in line with growth in the NT’s GSP. Since employment is a key driver of net interstate migration, its movement is generally consistent with population growth. The recent period of economic expansion, which peaked in 2012-13, was driven by the Ichthys liquefied natural gas (LNG) project, which had an unprecedented effect on the NT economy and will continue to provide a positive contribution for the duration of the 40-year operational life of the project, largely through exports of LNG, ongoing maintenance activities including major shutdowns and potential future investment.
The NT’s economic growth over the forecast period continues to reflect a transition from record levels of private investment, towards export‑driven growth. This transition will be largely dominated by activity related to the US$37 billion Ichthys LNG project. This is the NT’s largest-ever project and it has provided a significant contribution to GSP growth since 2011 through private investment, population, employment and consumption, including adding an average of $4.0 billion of private investment per annum to the Territory economy.
The NT’s headline economic growth rate strengthened to 4.0% in 2016-17 to a total gross state product (GSP) of $25.4 billion. The NT recorded the second highest economic growth of all jurisdictions, behind the Australian Capital Territory (4.6%). Nationally, gross domestic product increased by 2.1%.
As construction of the Ichthys LNG project is completed and the plant commences production in 2018, growth in NT domestic economic activity will moderate further. However, commencement of the production phase will benefit the economy significantly due to a boost in LNG, liquefied petroleum gas and condensate exports beginning in 2018-19, reaching full export capacity in 2019‑20 at levels expected to be sustained throughout the project’s 40-year life.
As a consequence, NT GSP is forecast to grow moderately over 2017-18 and 2018-19, before declining in 2019‑20, largely reflecting declines in business investment as the Ichthys LNG project completes its construction and commissioning phase. This will be partly offset by a significant improvement (over 375%) in net exports over the two year period 2018‑19 and 2019‑20, from 2017‑18. However, given the significant scale of the project, any changes to the construction completion, commissioning timing or initial level of exports from the Ichthys LNG project will have a material impact on the NT’s annual economic growth forecasts over the 2017-18 to 2019-20 period (Chart 2).
Economic growth in the outer years is likely to be supported by net exports, as well as moderate growth in consumption from both households and public sectors. Growth over 2020-21 and 2021‑22 is forecast to strengthen from 2.6% to 2.8%. This improving trend is in line with forecasts for the NT’s population and employment in the outer years.
Prospective investment projects in the pipeline, including those with major project status, are not included in the above forecasts as they have not yet received final investment decisions. If realised, these projects have the potential to provide significant improvement to the NT’s economic growth over the forecast period. Overall the NT economy is expected to be over 50% larger by 2021-22, at $28.0 billion in size, compared to 10 years ago.
State final demand (SFD) declined by 2.8% to $30 billion in 2017-18, following a 7.6% increase in 2016-17, mainly driven by falling private investment. The change in the domestic economy over the forecast period, as measured by SFD, reflects the NT’s economic transition from private business investment to domestic consumption. SFD will experience a significant rebalancing following years of record private investment and consumption. As a result, SFD is expected to contract over the forecast period as, unlike GSP growth, it will not benefit from the boost in exports from 2018-19 onwards. SFD is expected to contract in the medium term, with an 8.0% decline forecast in 2018‑19 and 4.4% decline in 2019-20, largely reflecting the declines in business investment. Underlying public investment is expected to provide some offsetting support to SFD however not at a level sufficient to fully offset the scale of the decline in private investment.
SFD is expected to return to moderate growth of 2.0% in 2020‑21 and 2.8% in 2021‑22, as household consumption strengthens, albeit below trend levels over the medium term, and private investment resets to long-term trend. This improving trend, although below historical levels, over the outer forecast period is largely in line with population and employment growth forecasts (Chart 3).
Employment conditions are expected to moderate reflecting the transition of the Ichthys LNG project from construction activity to the less labour-intensive operational phase.. The employment loss caused by the Ichthys LNG project transitioning to the production and operational phase in 2018-19 is expected to have a one-off impact on the level of NT employment. Consequently, employment is forecast to decline by 0.5% in 2018-19, following the departure of people from the NT’s labour force in the year (Chart 4).
Employment is expected to grow below long-term trends over the rest of the outlook period, with a shift from the construction sector as the main driver to an increased reliance on general growth across other key industries in the NT including the tourism‑related, education services, agricultural and defence sectors.
The unemployment rate is expected to increase as employment growth deteriorates following the major transition to the production and operational phase of the Ichthys LNG project (Chart 4).
From 2019 onwards, a large portion of workers who became unemployed and are unsuccessful in securing other employment are expected to move interstate for other employment opportunities or return to their usual place of residence. While reducing employment and the overall size of the labour market, the outflow of workers from the NT is expected to limit the impact of the wind‑down of the Ichthys LNG project construction phase on the NT’s unemployment rate over the outlook. Thus, the unemployment rate is expected to average 4.4% over the four years from 2018-19.
The NT’s population growth has been subdued over the past few years, driven by large net outflows of interstate migrants, as well as lower levels of overseas migration inflows, compared to recent highs. In 2016, the NT’s population increased by 0.3%, to 245 048. Since then, the rate of population growth has slowed.
In 2018 the NT’s population is forecast to decline by 0.7%. Much of this decline reflects further expected net interstate migration (NIM) outflows over the year as workers, who had relocated to the NT to work on major projects, depart. Net overseas migration is expected to continue to be a stable positive contributor to the Territory’s population but levels are not expected to be high enough to offset NIM outflows. The outlook for the NT’s population is expected to improve in the outer forecast period, returning to growth from 2019 (Chart 5).
Darwin consumer price (CPI) growth has been moderating over the past decade from the high of 4.4 % in 2006-07 to 1.0% in 2017-18. In 2018-19, the Darwin CPI is forecast to grow by 1.0%, again well below long-term trends. Over the forecast period, growth in the Darwin CPI is anticipated to continue to be modest without any strong inflation drivers and remain in the lower range of the Reserve Bank of Australia’s target band of 2 to 3% at the end of the forecast period. As the economy returns to normal rates of growth over the forward estimates, Darwin CPI is expected to slowly trend upwards to 2.3% in 2021-22 (Chart 6). This is a return to around the 10-year average.
Wage growth in the NT is expected to remain moderate as a result of low inflation expectations and a weaker labour market. Another factor contributing to moderate wage growth over the medium term is the decrease in labour demand as the construction of the Ichthys LNG project nears completion. If these workers stay in the NT, this is likely to increase the spare capacity in the NT labour market, which will put further downward pressure on wage growth. Therefore, the lowest wage growth to occur over the forecast period is in 2018-19, which is when the Ichthys LNG project is scheduled to transition to the production and operational phase. Wage growth is forecast to increase from 2019-20, but remain below long‑term trends, consistent with national trends and demand for labour (Chart 6).