Coronavirus could end four decades of economic growth for Sydney

Sydney's economy has not had a recession in nearly four decades but the city’s long run of uninterrupted growth is being tested as key industries struggle with the fallout from the coronavirus.

The last time Sydney had a prolonged contraction, or what could be described as a regional recession, was in 1982-83 a report by economist Terry Rawnsley says.

Coronavirus is likely to have a disproportionate impact on Sydney's economy.Credit: AAP

Even during the last national recession in 1990-91 Sydney’s economy managed a small expansion unlike most other cities and regions where activity contracted sharply.

But Mr Rawnsley warns the economic consequences of the coronavirus outbreak are likely to have a disproportionate impact on Australia’s biggest cities because of the structure of their economies.

“Sydney has a big diversified economy and has been able to ride out many of the economic challenges that have hit other parts of the country hard,” he said.

“But we know many impacts of this crisis will be Sydney specific including reduced demand across international education and international tourism sectors along with the meltdown on financial markets which we know has flow-on effects ... Sydney is probably looking at a situation where growth will be close to zero for the financial year with maybe a negative quarter or two in there.”

Also, more than half of all cases of coronavirus confirmed in Australia so far are located in Sydney and Melbourne.

“How Sydney and Melbourne respond to the public health emergency from the COVID-19 outbreak will determine the outcome for the national economy,” Mr Rawnsley said.

Recent modelling by NSW Treasury said the impact of bushfires and coronavirus will detract up to two thirds of a percentage point from growth this financial year, although the economic consequences of the outbreak appear to have become more severe since that estimate was released.

While the national economy has remained recession-free since the early 1990s many regions have experienced a local economic contraction since.

The report finds the economy of regional NSW has experienced four years of contraction over the past three decades, including the last financial year when output fell 0.3 per cent amid widespread drought.

Period of economic contraction in regional areas have often been associated with adverse weather, especially droughts.

“Falling agriculture production is directly affecting related industries such as manufacturing, wholesale trade, and transport and storage,” the report released by consultancy SGS Economics and Planning said.

Brisbane’s economy experienced a 2.1 per cent decline in annual output in 2000-01 following the introduction of the GST which affected the city’s housing construction sector. Adelaide avoided a recession in 1990-91 but had a decline of 2.3 per cent in 1991-92. Tasmania experienced recessions in 2000-01 (-1.0 per cent) and 2012-13 (-0.3 per cent).

The end of the mining boom hit Perth especially in the aftermath. Its economy contracted by 2.9 per cent in 2016-17 and there has been almost no growth over the past five years.

The report said the Australian economy has been able to cope with regional recessions over the past three decades because the downturns have touched different industries or locations at different times.

“In effect, national businesses respond by looking for opportunities in other regions, and internal migration means workers move to locations with better job prospects,” it said.

“However, if Australia experiences an economic downturn across multiple industries across multiple locations within the economy at the same time this is likely to negatively impact more regions at the same time with less ability to respond at the national level.”