South Australian economy expected to grow in short term but struggle with ageing population and brain drain later

South Australia’s economy is on track for steady growth — but its older population coupled with a brain drain threatens to “keep a lid” on the state’s long-term growth prospects, experts warn.

South Australia’s economy is on track for steady growth but its older population, coupled with a brain drain, threatens to “keep a lid” on the state’s long-term growth prospects, experts warn.

A business outlook report released on Tuesday by Deloitte Access Economics reveals rising business confidence, a lowering of the Australian dollar and interest rates over the past 12 years has aided the state’s economic growth.

The positive forecast has rebutted commentary that SA would go bust following the closure of Holden’s Elizabeth plant and the “valley of death” in defence-related manufacturing – the industries struggling while multibillion-dollar defence contracts come online.

Sonnen is making solar batteries from the former Holden plant in Elizabeth. Picture: AAP / David Mariuz

Instead, the state, which escaped unscathed from the mining boom crash and record housing prices in Victoria and NSW, has growing business confidence and investment.

Principal author Chris Richardson said: “When people were jumping up and down about doom and gloom, the two key measures of the SA economy – how much production in the state, how much spending in the state – were both accelerating and both remain pretty solid.”

The report, which forecasts business outlooks across the country to 2022-23, states SA’s economy is growing at a steady 2 per cent, with business investment, which reached 10 per cent, underpinning the return to growth in recent years.

Private investment in electricity generation and investment was a standout sector, with $9 billion worth of projects listed, under way and in planning.

Business tax changes including reductions in payroll tax are also contributing to a more positive investment outlook, according to the report.

Shipbuilding at ASC will be ramping up over the next decade. Picture: AAP / Emma Brasier

But demographic trends and industry structure remain “an ongoing challenge”.

“The pace of retirement among Baby Boomers is a bigger constraint on growth in SA than it is across the nation,” Mr Richardson said.

“A slower growing population, an older population – that combination leaves SA with bigger challenges from ageing.”

The old problem of the “brain drain” – young and qualified South Australians moving to the east coast for higher paying jobs and opportunities – is also suppressing population growth.

“That may ease in the next little while because housing prices and housing costs are so strikingly stupid on the east coast,” Mr Richardson said.

Migrants have been filling the gaps, as the low Australian dollar encourages students to study and visit Australia, and cashed-up travellers help bolster consumer spending.

Business SA boss Nigel McBride said business confidence was the highest it had been in more than a decade.

He said announcements made late last year about a space agency, investment at Whyalla, and naval shipbuilding showed confidence was high.

“We don’t want to see massive booms and busts,” he said.

“We have a solid broad-based economy, that’s been coming increasingly more effective in exports and getting overseas markets.”

The CommSec State of the States report will today reveal SA remains in fifth spot, with Victoria and NSW equal first.

SA was third on business investment and overall construction work done, and has improved on equipment spending and housing finance.

But it fell on dwelling starts, jobs, and population growth.

What is happening to South Australia’s economy?

INDUSTRY – experts found parts of strong industries, such as manufacturing, did not present good growth prospects.

JOBS – funding for infrastructure projects under the former Labor state government, and the ongoing rollout of the NDIS has brought more people into the workforce.

HOUSING – the pace of housing construction will contribute to SA’s economy in the short term but experts expect construction activity to fall from 2020 as the approvals pipeline looks to have already peaked.

CONSTRUCTION – engineering construction is strong, at the same growth rate as NSW, as the State Government invests in additional infrastructure projects. More than $11 billion will be spent on infrastructure over the next four years, with $3.3 billion going towards transport projects and $1.2 billion towards water infrastructure.

■ The commercial construction sector has had a boost from the multimillion-dollar redevelopment of the Adelaide Festival Plaza, Calvary Hospital in Adelaide, the third stage of the Queen Elizabeth Hospital redevelopment, and expansion of the Adelaide airport terminal.

■ Further gains are also expected in the construction of accommodation, retail spaces and offices.

WAGES – lack of wage growth is expected to slow consumer spending.

Originally published as South Australian economy expected to grow in short term but struggle with ageing population and brain drain later