Public sector boom equals good times ahead for ACT economy, says business outlook

In a forecast that will cheer both the ACT Government facing an election in October and businesses doing it tough, the Territory can expect above-average growth in 2024-25 thanks to booming public sector spending and Canberrans opening their wallets as cost of living pressures ease, according to Deloitte Access Economics’ latest business outlook.

Gross State Product in 2024-25 is tipped to grow by 2.0 per cent, which, although relatively modest in ACT terms, will still be above the forecast national GDP growth forecast of 1.7 per cent.

While the rest of the country is still keeping their hands in their pockets, Canberrans have not stopped spending altogether and the outlook expects they will be happy to fork out more as the year goes on as prices recede, people bank a tax cut and the possibility of the Reserve Bank cutting interest rates in 2024-25 firms.

“Total household consumption increased by 0.3 per cent in the December 2023 quarter, mostly attributable to higher spending on essentials but aided by greater purchases of recreation services,” the outlook says.

The spending resilience comes as ever from Canberra’s large, well-paid, secure public service workforce, which faces less mortgage pressure than those in other jurisdictions.

Those who aren’t homeowners have also not had the kind of rent increases tenants are enduring elsewhere, with flat rents in the December quarter.

The outlook says, “More modest increases in rents, one of the key contributors to headline inflation, are expected to see the Canberra CPI grow marginally more slowly than inflation at the national level in 2024-25.”

Consumption is projected to grow by 1.4 per cent in the ACT in the next financial year, up from an estimated 1.0 per cent in 2023-24.

The ACT’s important international education sector has also rebounded — the number of overseas students is returning to pre-COVID levels.

Total services exports increased by 1.8 per cent in the December 2023 quarter, and further growth is forecast for 2024-25.

Like elsewhere, new housing starts have fallen and will continue to decline next financial year until the Federal Government’s ambitious National Housing Accord, along with the ACT’s own housing and land release program, starts to rev up in subsequent years.

However, the big story for the ACT is the increase in Commonwealth spending on jobs, services and government buildings, which drove the state’s final demand in the December quarter.

The outlook said public sector spending growth is expected to be even stronger in 2024-25 as departments and agencies take on more staff.

Deloitte Access Economics partner Stephen Smith said public sector employment had helped the ACT avoid the worst of the cost-of-living crisis, and the outlook expected it to remain robust over the next four to five years.

“All ACT governments benefit from the fact that the federal government is a huge employer here and that gives it a degree of stability,” he said.

“It means that the downturns aren’t typically as large, but neither are the upswings.

“We do think that things are on the up in terms of relatively solid rates of economic growth, household finances, a pickup in dwelling investment not quite yet but a pickup coming, and pretty solid rates of population growth continuing as well, so it’s a relatively positive story for Canberra.”

Mr Smith said Canberra had not escaped the run of business failures across the country, particularly in the construction sector, but there were also positive signs.

“There’s been a lot of investment in new restaurants and people opening up in Canberra, which is a really good sign relative to other states and territories,” he said.

Mr Smith said the “uncontrollables” posed the greatest risk to the ACT economy, such as another fuel shock from overseas and inflation rearing its head again.