A two-year slowdown in Sydney’s economy has exposed entrenched challenges for the city which need to be address in the coming decade, economists have warned.
Sydney’s economic growth rate fell to a five-year low of 2.6 per cent last financial year a report by SGS Economics and Planning revealed last week. That’s well short of the 4 per cent growth registered in 2015-16 and 3.5 per cent in 2016-17.
The report’s author, economist Terry Rawnsley, said the slowdown highlighted problems Sydney has with housing affordability and access to jobs, services and business opportunities which had become more difficult due to congestion.
“The past two years have reminded Sydney that there are all these challenges in terms of its urban structure and economic structure which haven’t gone away,” he said. “They will need to be solved in the 2020s.”
The past decade underscored the degree to which Sydney’s economic fortunes are linked to the property market.
The city’s growth rate was well below the national average early this decade but accelerated to a 15-year high in the wake of a five-year property boom which began in mid-2012.
Sydney’s growth rate subsequently slowed sharply following a house price slump between mid-2017 and mid-2019.
Economist Chris Richardson, a partner at Deloitte Access Economics, said the longer-term outcome of a boom and bust in house prices is higher mortgages and slower population growth.
“The pain of higher mortgages and the servicing of them began to be apparent – people started to leave Sydney in greater numbers or they didn’t come here in the first place because prices were through the roof . . . and that began to weigh on the economic performance of NSW.”
Mr Richardson warned Sydney’s apparent reliance on rising property prices for stronger economic growth “doesn’t augur enormously well for the coming decade as a whole.”
Mr Rawnsley said Sydney’s economy has slowed in the past two years despite favourable conditions, including historically low interest rates and a relatively low Australian dollar.
“There’s all these tailwinds pushing Sydney along but growth has pulled back to a speed limit at around 2.5 per cent,” he said. “That’s because it’s become harder to grow the city…but there’s no easy solution for making the city more affordable and less congested in the short-term.”
One major structural challenge is a mismatch between healthy jobs growth in the east of the metropolitan area and rapid population growth in the city’s west.
That forces hundreds of thousands of commuters to leave western Sydney for work each day, putting pressure on road and rail networks.
That mismatch is exacerbated by a lack of affordable housing in areas with good access to jobs.
Despite slower growth in the past two years Sydney’s economic output reached $461.4 billion in 2018-19 which was $109 billion more than a decade earlier, Mr Rawnsley’s analysis shows.
Greater Sydney contributed 24.1 per cent of Australia’s gross domestic product in 2018-19, by far the biggest contribution of any capital. The city making the next largest contribution to GDP was Melbourne with 19.3 per cent.
Source: Thanks smh.com