Insight

Comparative business investment growth.

The biggest driver of economic growth in Australia now is business investment, although all the increase is going to Western Australia and Queensland. That’s why, when you live in Melbourne or Sydney, it doesn’t feel like things are getting much better.

The economy comprises four main drivers. The first is consumer spending. In large part, that’s made up of what you spend at the supermarket and in restaurants and on fridges — all those things that eat away at your pay packet. It accounts for about 60 per cent of what goes on in the economy and it never goes backwards. 

In fact, consumption is always pretty steady.

Then there’s housing and that goes up and down but isn’t as important as consumption. At the moment, housing is lacklustre.

Government spending is the third factor. As the federal government tries to bring in a surplus in 2012/13, we can’t expect much of a bump from that. State governments, particularly outside the resource states, and local government, are not overly flush with funds either.

The fourth driver of economic growth is business investment. At the moment it’s the swing factor. It’s why the Reserve Bank didn’t cut interest rates last week. It’s why economic growth, believe it or not, is tracking a little above the long-term trend rate. And it’s why there is reason to be confident about our economic future.

But most of that investment growth is going to the two big resource states. Companies such as BHP Billiton, Rio Tinto, Woodside, Newcrest and some of the overseas energy giants are spending billions of dollars building rail links and ports and pipelines to transport Australia’s natural resources.

Meanwhile, the high dollar, tight credit conditions, agreater propensity for Australians to save and the tight-fisted governments are hurting retailers, manufacturers and the property sectors.

Companies in those sectors are pulling in the reins, withdrawing investment.

And the majority of those companies are in NSW and Victoria.

Overall it’s good news. We have a relatively strong economy compared with the rest of the world. But try explaining that to the store owners,  builders and retailers of Sydney and Melbourne.