Economic performance and outlook table (a)

 

2019-20

2020-21

2021-22

2022-23

2023-24

  Outcome Forecast Forecast Forecast Forecast

Real state final demand

-2

½

2

2

3 ¼

Real gross state product

-0.7

2 ¾

2

2 ¾

Employment

-0.1

¾

1

1

Unemployment rate (b)

6.5

6 ½

6

5 ¾

5

Sydney Consumer Price Index (per cent)

1

1 ¼

1 ½

1 ½

1 ¾

Wage price index (per cent)

2

1 ¼

1 ½

1 ½

1 ¾

Nominal gross state product

0

1 ¾

4

3 ¼

4 ¼

Population (c)

0.9

0

0.2

0.7

1.1

(a) Percent change, year average, unless otherwise indicated.
(b) Year average, per cent.
(c) Percent change through the year to 30 June. Forecasts are rounded to the nearest 0.1 percentage points.

 

Economic performance

New South Wales recorded impressive economic growth in the years preceding 2019-20, however the impact of COVID-19 and measures to suppress the spread of the virus have had a significant impact on the NSW economy. Gross state product contracted by 0.7 per cent in 2019-20, the weakest outcome since official statistics were first published in the early 1990s. Meanwhile, in the early months of the crisis, employment fell by more than 270,000, over 6 per cent of the entire State’s workforce.

However, successful management of health and economic risks, as well as temporary government support measures have helped minimise the damage, leaving the state in a much stronger position to recover. The size of the economy in 2020-21 is now expected to be broadly unchanged from the prior year and is then forecast to grow by 2¾ per cent in 2021-22. This partly reflects a bring forward of activity. Once this initial rebound has run its course, the pace of growth is projected to ease but remain at an above-trend pace in over the next four years.

The labour market has realised the benefits of this rebound in activity. The robust recovery in employment over the second half of 2020 and a participation rate already around pre-COVID levels suggest that the unemployment rate peaked at 7.2 per cent in July 2020. While still elevated relative to pre-COVID, the unemployment rate is expected to ease to 6 per cent by the end of 2021-22. While the outlook has improved, spare capacity in the labour market over coming years is expected to keep wages growth and inflation subdued, with the latter below the RBA inflation target of 2-3 per cent.

Improved labour market conditions, record-low interest rates and government stimulus are forecast to provide support for dwelling investment in the near term, much of which represents a pull-forward of demand. Dwelling investment is forecast to see further declines over coming years, given the permanent loss of migration/population growth due to international border closures.

Governments continue to play a key part in the economic recovery. Public demand made the only meaningful positive contribution to domestic growth during 2019-20. Public consumption was particularly strong, reflecting increased spending on emergency and health services in response to bushfires and the COVID-19 pandemic. Looking forward, public demand will remain a significant contributor to growth, partly driven by the record $107.2 billion public infrastructure pipeline. State and local public investment alone is expected to contribute ¾ percentage points to economic growth over the two years to 2021-22.

Despite an upgrade to the economic outlook, there remains a high degree of uncertainty around the forecasts given the unpredictable nature of the challenges facing the economy. There are material risks associated with the vaccine rollout and effectiveness.  Any lack of progress towards containing (and reducing) infections globally could result in governments keeping international borders closed for longer – this would be a major drag on economic activity. More near-term risks revolve around the unwinding of temporary Commonwealth Government policy support.

A more detailed economic outlook can be found in the 2020-21 NSW Half-Yearly Review.

Last updated: 16/03/2021