Here’s another reason interest rates won’t rise anytime soon…
A recent PwC study suggests more than one-third of the nation is experiencing recession conditions as the economy is increasingly driven by a small group of regions.
It’s a bit like the old 80/20 rule – the PwC analysis found about 20 per cent of national income was now produced in just 10 out of 2,214 locations across the country, with Sydney, Melbourne and WA’s iron ore belt in the Pilbara among the dominant areas.
Also in the top 10 are the central business districts of Perth and Brisbane, Pyrmont-Ultimo and Macquarie Park-Marsfield in New South Wales, and Adelaide.
The concern of growing economic concentration in a minority of regions is coupled with news that 35 per cent of locations were effectively in recession in the last financial year.
“More and more locations are suffering declines, while a key handful of locations are becoming more and more important,” Rob Tyson, director of economics and policy at PwC, said, according to the AFR.
“While the spotlight has been on the Pilbara and the phenomenal growth of economic activity generated from these resource deposits, it has actually been in the urban areas which have been steadily capturing a larger share of economic output.”
While overall the Australian economy grew by 2.5% in the last financial year, this growth is being generated by less than 0.5% of the economy, according to the unpublished data provided to SmartCompany by PwC.
Areas doing poorly:
These include regions such as Nanango in Queensland and Churchill in the Latrobe Valley in Victoria, regions reliant on coal production, which are contracting in terms of economic growth.
Nanango’s contribution to the economy has contracted by 61%, while the Latrobe Valley’s has shrunk by 21%.
Other regions falling to the bottom of the list include Moe-Newborough, also in the Latrobe Valley; Condell Park in Sydney; Wetherill Park Industrial in Sydney; Mount Gravatt in Brisbane; Sunnybank in Brisbane; West Footscray-Tottenham in Melbourne; Deniliquin in rural New South Wales and Cairns.
Overall, PwC said one in three locations analysed had economies that contracted in 2014.
What this means to you
Firstly I can’t see interest rates rising any time soon, and there may even be a further cut to stimulate the economy.
Also a property investor you should avoid chasing the so called “hot spots” as many of the locations performing poorly are ones that have been promoted by some hot spot chasers in the past.
Instead property investors should stick to the 4 big capital cities where there are multiple pillars supporting economic growth and then only invest in those locations in these cities that house the service industries that are going to drive the next phase of our economy.
These are locations where wages growth will rise above average meaning those living there will have more disposable income to afford properties.