The Northern Territory’s (NT) economic outlook explores a range of key economic indicators and industries, with forecasts produced for economic growth (gross state product and state final demand), population growth, employment growth, unemployment rate, prices (consumer price index) and wages (wage price index).
The following is a summary of the Northern Territory’s (NT) economic outlook, as published in the Department of Treasury and Finance’s Mid-Year Report in November 2019.
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 declines 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 state final demand (SFD). 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 was 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 $5.0 billion of private investment per annum to the NT economy.
The NT’s headline economic activity declined by 1.5% in 2018-19 to a total gross state product (GSP) of $26.1 billion. The NT recorded the only decline of all jurisdictions, while Tasmania recorded the highest increase (3.6%). Nationally, gross domestic product increased by 1.9%.
The NT’s economy is expected to strengthen by 6.3% in 2019-20 and then 4.1% in 2020-21, as the economy becomes dominated by LNG exports (Chart 2). Since the growth in 2019-20 will be mainly reflective of growth in exports, most other sectors of the economy will either contract, or report modest growth over the same period.
Economic growth in the outer years (2021-22 and 2022-23) is expected to average 2.7% as the effect of the completion of construction at the Ichthys LNG project and commencement of exports washes through, and no longer contributes to fluctuations in economic growth. Growth in 2021-22 and 2022-23 is expected to reflect improvements in household consumption, public investment and initial levels of exploration activity associated with onshore unconventional gas.
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.
SFD declined by 16.2% to $24.6 billion in 2018-19, following a 3.8% decrease in 2017-18, which was mainly driven by a contraction in private business investment (down 53.5%). The change in the domestic economy over the forecast period, as measured by SFD, reflects the NT’s economic transition from private 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 continue to contract over the next year as, unlike GSP growth, it will not benefit from the boost in exports. SFD is expected to decline by 1.7% 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 growth of 0.3% in 2020‑21, before strengthening to 2.4% and 2.2% in 2021‑22 and 2022-23 respectively, as household consumption strengthens, albeit below trend levels over the medium term, and private investment resets to a long-term trend. (Chart 3).
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 highs experienced a few years ago. The NT’s population decreased by 0.4%, to 245 562 through the year to the March quarter 2019.
The population decline is expected to continue into 2018-19, with the NT’s population estimated to fall 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 and natural increase are both expected to make positive contributions to the NT’s population, but these contributions are expected to be weaker than in the previous year. The outlook for the NT’s population is expected to improve in the outer forecast period, returning to growth from 2020-21, but remain well below the long term average growth rate over the coming years (Chart 4).
Employment conditions continued to weaken in 2018-19 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 is expected to be a major contributor towards a decline of 3.4% in 2018-19 (Chart 5).
Following the declines across 2017-18 and 2018-19, employment is expected to decline by a further 2.0% in 2019-20, reflecting subdued economic conditions across the NT. Over the later years of the outlook period, employment is expected to return to growth, albeit at below trend levels.
The unemployment rate increased to 4.5% in 2018-19, reflecting the decline in employment following the major transition to the production and operational phase of the Ichthys LNG project (Chart 5).
From 2019-20 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. This is expected to offset the effect of low employment growth and result in the unemployment rate falling slowly, but steadily over the forecast period, dropping to 4.4% by 2022-23. However, this is still above the NT’s long term average.
In 2018-19, the Darwin CPI grew by 0.9%, well below long-term trends. This reflects the continued downward movement in prices within the housing category. Growth in the Darwin CPI is anticipated to strengthen slightly compared to 2018-19, but continue to be modest without any strong inflation drivers. It is expected to return to the lower range of the Reserve Bank of Australia’s target band of 2 to 3% from 2020-21 (Chart 6).
Wage growth in the NT strengthened from 1.3% in 2017-18 to 2.1% in 2018-19, but remains well below long term trends over the forecast period as a result of low inflation expectations and a weaker labour market. This improvement reflects the effects the public sector’s enterprise bargaining cycle, in particular the delay in 2017-18 in approving the 2017-21 NTPS Enterprise Bargaining Agreement. Growth in WPI is then expected to moderate to 1.5% in 2019-20. Wage growth is forecast to increase from 2021-22, but remain below long‑term trends, consistent with national trends and demand for labour (Chart 6).