The economic transformation underway in the Hunter is a microcosm of the broader adjustment occurring in the national economy. The so-far successful adjustment away from mining-related operations to other sources of growth in the Hunter perhaps shows the way for other trade-exposed regions, like Western Australia and parts of Queensland.
The steelworks in Newcastle shut almost two decades ago, leaving coal mining and export as a dominant driver of regional economic growth. Being a key exporting hub was a distinct advantage as international coal prices soured in the wake of the global financial crisis, thanks to China’s massive infrastructure drive that triggered booming demand for energy and raw materials.
However, coal prices have returned to more sustainable levels after weakening demand and a global supply boost, forcing the Hunter to again adjust. Thankfully, falling commodity prices have not been the wrecking ball for the local economy that doomsayers predicted. In fact, lower prices have encouraged necessary adjustments. Local industries have been forced to be innovative. The news so far is good – unemployment in and around Newcastle is higher than the national average, but not materially so.
What is working? First, the strategic sale of government assets freed capital to be funneled back into local infrastructure and urban redevelopment. This asset-recycling has clear benefits to local economic activity and employment. The successful redevelopment of the Newcastle’s harbour front bears witness to that.
Second, new industries are emerging, including in high tech and services. Third, the Hunter is uniquely placed to benefit from growth in international tourism. The construction of the cruise ship terminal will, for the first time, give tourists direct access to the region’s natural assets. Being within striking distance of Sydney is another advantage, with skilled young people attracted north by job opportunities and more affordable housing.
The national economic transformation is similar to the Hunter’s, albeit much less advanced. The national economy is adjusting in the aftermath of one of the biggest commodity price and mining investment booms ever seen. Australia’s economy has to generate activity and jobs outside mining.
Like the Hunter, Australia will benefit from the expected lift in international tourism, but creating sufficient jobs to absorb the workers spun off from mining investment is a serious challenge. Most of these new jobs have been generated in the service sector, particularly in healthcare and education, but also in professional services.
There’s also an adjustment in manufacturing nationally, with major car makers on the brink of shutting, and steel makers again under pressure. The decline in manufacturing as a share of the national economy refocuses attention on the need to lift productivity and generate jobs in the service sector.
Policy makers have a key role in establishing the right environment for investment and job creation. The twin rate cuts from the Reserve Bank this year have made borrowing for investment more attractive, while prudent management of the state’s public assets can facilitate more recycling of proceeds into job-creating investment and urban redevelopment.
The adjustment has some way to run in both the Hunter and nationally but, so far, the progress is encouraging.