Impact of 2020
At more than half-a-trillion dollars, New South Wales is Australia’s largest state economy, accounting for around a third of the nation’s economic output and home to nearly a third of Australians. However, as was the case for economies across the world, New South Wales faced significant health and economic challenges for most of 2020 due to the Coronavirus pandemic.
While the combined impact of bushfires, COVID-19 and measures to suppress the spread of the virus have had a significant impact on the NSW economy, early signs indicate that the state is on its way to recovery. The size of the New South Wales economy, measured by Gross State Product (GSP), which experienced above trend growth over the four years to 2018-19, saw a contraction for the first time in recorded history by 0.7 per cent in 2019-20. Since then, the state has experienced a faster than expected rebound in economic activity, with NSW state final demand (SFD) rising by 2.9 per cent in the December quarter 2020 – the third strongest of the states. These results confirm that the NSW economy continues to see a strong recovery from the pandemic-driven collapse in the middle of 2020.
The NSW population, which currently stands at 8.1 million people, has grown at an average of 1.1 per cent over the last 30-years. NSW population experienced a more rapid rise in the seven years leading up to 2018-19 as a strong labour market attracted workers from other states and a larger share of overseas migrants. However, with the closure of international borders due to COVID-19, the state’s population growth eased significantly in 2019-20.
Service driven economy
New South Wales has a diversified, service driven economy with a relatively lower exposure to commodity prices compared to the mining states of Western Australia and Queensland. Over the past two decades, the services share of the state economy has gradually lifted to account for almost 80 per cent of economic activity and more than 90 per cent of employment.
New South Wales has a comparative strength in the provision of business services which, in aggregate, has grown to account for nearly a third of Gross State Product. This includes industries such as financial services, professional, scientific and technical services, property services, information media and telecommunications. The construction, manufacturing, health and education sectors also account for large shares of economic activity.
The state’s more than four million strong labour force is employed across this diverse range of industries, the largest employers being the health and social care, professional, scientific and technical services and retail trade sectors. Together these sectors account for a third of all employment. The size of the state’s labour force depends on the proportion of people employed or seeking employment—the workforce participation rate. The NSW participation rate hit a record high 66.2 per cent in 2019 but has since come off this peak.
Import and export
New South Wales has a diverse export base of manufactured goods, natural resources and services. Major merchandise exports include coal, copper, beef and aluminium. The primary export destinations for goods are Japan, China and the Republic of Korea, while the major suppliers of imported goods are China, the United States and Germany.
New South Wales has historically been a net importer of goods and a net exporter of services. Following the global financial crisis, weaker global demand and a stronger Australian dollar saw net overseas service exports weaken and the state became a net importer. However, more recent suggests a reversal is underway, with service exports lifting to record highs.
This recent upswing in net overseas service exports has been driven by strong growth in exports of education, personal travel (tourism), and financial and business services.
The medium-term outlook for the services sector is strong as a number of Australia’s Asian trading partners, particularly China, shift away from manufacturing and export led growth, towards a more consumer and services led growth.