Issue No. 32 - December/January
Brace yourself for impact
by Professor Richard Blandy
In the absence of the drought (and some other special influences) they would have grown by a bit over 3% in 2007.
As things have turned out, the 2006 drought is likely to cut rural production by one third to one half nationally, knocking about one percentage point off the national economic growth rate in 2007, and up to two percentage points off the South Australian growth rate - about $1 billion, probably.
The reason for the bigger impact on the South Australian economy than on the national economy is because the agricultural sector is about 5% of the SA economy but only about 2.5% of the national economy.
Similarly, it now seems inevitable that assembly of the Mitsubishi 380 at Tonsley Park will cease in the near future. If this happens, it will cut something like a further 0.5% off South Australia’s Gross State Product. This could happen in 2007.
Hence, what would otherwise have been another excellent year, economically, in 2007, is now likely to turn out to be mediocre, nationally, and weak (possibly very weak) in South Australia.
By the same token, assuming that 2007 is not another extreme drought year, and some alternative use is found for the Tonsley Park facility, the national (and especially the South Australian) economies are likely to grow particularly strongly in 2008, as a result of the economic stimulus from a rebounding agricultural sector, and new investment at Tonsley Park.
So, it would be wrong to cast a pall of gloom about Australia’s and more particularly South Australia’s medium-term economic prospects because of this year’s drought and the plight of Mitsubishi – the carmaker has already scaled down its workforce by two-thirds and may have already absorbed much of the shock.
There will be a significant short-term impact, but recovery in 2008 and beyond will claw back much of any losses incurred in 2007.
Also, there can be little doubt ...