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What’s over the horizon for Queensland?

12 April 2017: What if China’s rise is temporarily ‘trumped’? Would that tip Australia into recession, sending unemployment soaring and house prices plunging? And where would it leave Queensland?

Let’s be clear – bad stuff can happen. But fear of the future is corrosive. The answer to rising uncertainty doesn’t lie in pretending the future won’t be disrupted. Chances are it will. Rather, the answer lies in shedding as much light as we can on the darkness cast by uncertainty.

Don’t be scared. Be prepared

‘China stumbles’ is just one of the three potential scenarios detailed in Deloitte’s latest Building the Lucky Country series report. What’s over the horizon? Recognising opportunity in uncertainty urges us to be less fearful in the face of uncertainty and to actively scan possible paths for the future.

As Cindy Hook, Deloitte Australia CEO notes: “Taking the time to scan the horizon is among the most valuable investments that businesses, governments and families can make. As business leaders and as a nation, we owe it to ourselves to think through plausible ‘what ifs’ and weigh up what they might mean.”

John Greig, Deloitte Queensland Managing Partner added: “Uncertainty can mean that businesses can be rather more cautious than they should be – and so lead to lost opportunities. We need to keep a sustained focus on our advantages so we can do better than that.”

Deloitte Chief Strategy Officer and report author John Meacock said: “What’s over the Horizon? will help business leaders shine a light on uncertainty and turn it to their advantage. Understanding the impact of ‘what ifs’ on their industry and business is essential. What’s over the Horizon? provides an opportunity to scenario plan using better information and tools to prepare for the future.”

What’s over the horizon? uses the new Deloitte Horizon model to explore three plausible paths for Australia’s future:

  • What would happen if troubles in China sent Australia lurching into recession?
  • What would Australia look like if we successfully slipstream Asia’s new booms?
  • Or what would Australia look like if we get better at being ‘cyber smart’?

To be clear, none of these three scenarios is the ‘most likely’ outcome for Australia. But they’re all plausible. And unless decision-makers in Australia and around the world start to be better at assessing risks and opportunities, it is likely that our future will underperform its potential.

Scenario 1: What if China tips Australia into a recession – hitting our housing?

Australia’s gains from our relationship with China have been huge, but equally our dependence on China is also huge, and our vulnerability on that front has risen significantly over the past decade.

Report author and Deloitte Access Economics partner, Chris Richardson said: “Australia doesn’t have the defences we had back in 2008 and 2009 – we lack firepower in interest rates and the Budget. And unlike what happened in the GFC, China would be part of the problem rather than part of the solution. So this scenario would bring recession here, and hit housing too.”

By 2019-20 that would leave Australia with half a million fewer jobs, and the better part of a trillion dollars wiped off our wealth as housing prices fell 9% and the share market dropped 17%. Business profits would drop by 19% and sales by 8%, while the $A would drop 15 cents against the $US.

Where would that leave Queensland? Feeling some pain

States with great resource sector strengths – such as Western Australia and Queensland – have been huge beneficiaries of the rise of Asia in decades past, and that will continue to be true into the future.

But that ability to surf Asia’s growth comes with a matching vulnerability to Asia’s business cycles.

So there’s no particular surprise that Queensland would also be among the hardest hit regions in Australia if this scenario eventuated. The slowdown in China’s economy since 2011 has already taken a toll on this state, and a sharper slowdown would deepen that pain – slowing construction and maintenance in the coal and gas sectors in particular, which in turn would lead to a drop off in construction, including those inner-city apartments in Brisbane.

China stumbles scenario – impact on jobs by state in 2018-19
China stumbles scenario – impact on jobs by state in 2018-19

As Greig notes: “The Queensland economy is diversified and is forecast to grow – but that could present a vulnerability for the state were the cycle to take an unexpected turn.”

Scenario 2: What if Australia successfully surfs Asia’s third wave?

The best and brightest future for Australia is essentially ’more of the same’ as we ride Asia’s boom to a better future. And as we have the courage to adopt much needed economic reforms.

“In many ways this scenario is simply history on steroids,” said Richardson. “The siren call of the populists currently dominating the global electoral landscape would have to be defeated. Politicians would have to act with courage and determination to deliver reforms, both in Asia and here at home.  But, if achieved, the maturing boom in Asia would see the region’s rising middle class consumers power a new set of opportunities for our nation, generating a range of potential growth sectors.”

Queensland would share in the benefits of renewed booms in Asia and reforms here at home

Because this scenario includes success on the home front as well as in Asia, there’s a spread of winners at the state level. Queensland ranks as the most successful of the larger states, being able to leverage its existing strengths in energy and resources, as well as amp up success in selling to the rising middle classes of Asia – including tourism, with increasing numbers of Asian students studying in this state. Queensland’s agribusiness sector will also win out.

Asian century scenario – impact on jobs by state in 2030
Asian century scenario – impact on jobs by state in 2030

In particular, this is a scenario in which India would shine, and that would generate good news for some sectors that may otherwise face challenges in the decades ahead, including thermal and coking coal.

The Australian economy would see more than $800 billion is added to national income across the next two decades.  And that bigger pie would be shared: wages would lift by 1.8% more than prices, and there would be 1.6% more jobs, while a lift in profits and prospects encourages businesses to invest 5.7% more in future capacity.

As Greig puts it: “Queensland has what the world wants, and a scenario in which the world sees greater success is one in which this state shines.  The incomes earned in Queensland would jump by more than an extra $150 billion between now and the mid-2030s.”

Scenario 3: What if Australia goes cyber smart – and invests with confidence?

Digital opportunities and cyber risk go hand in hand. We live in an increasingly digitised world, but the enormous benefits generated by that also bring cyber risks. This means the very technologies with the greatest potential to turbocharge our future prosperity, are those that we are often less willing to pursue.

Richardson said: “Cyber risk – and our responses to it – epitomise the point we’re making in this report. Uncertainty generates corrosive costs, but this scenario sees Australian businesses, organisations and families, better address cyber risk, thereby freeing themselves up to invest with greater confidence.”

The scenario would free up investment in valuable technologies in this nation, lifting business investment by 5.5%, and adding 60,000 net new jobs to the economy over the next two decades.

This is a plausible future for Australia, and one in which Queensland would do well, ranking behind only NSW among state winners.

Cyber scenario – impact on jobs by state in 2030
Cyber scenario – impact on jobs by state in 2030

Greig noted: “Queensland’s rising role in developing exponential technologies and breakthrough innovation and our deliberate investment in these areas would leave us well placed to tap into the opportunities that would open up if Australia more generally opted to go ‘cyber smart’.”

It is only by understanding how risks and opportunities will affect the economy that businesses and policymakers can properly prepare for the inevitable uncertainty that the future will bring.

About Deloitte Horizon

Horizon marks a first – Deloitte has ‘industrialised’ strategic scenario analysis, providing a range of scenarios for the future, covering economic, technological and regulatory outcomes, and flowing those through to detailed views across each of 56 industries and eight states and territories.

About Building the Lucky Country

Deloitte’s Building the Lucky Country series was launched in 2011 and has been developed to prompt debate and conversations across business and government on issues facing the Australian economy. The five previous reports are:

  • The purpose of place: reconsidered (2015)
    As Australia transitions to a knowledge-based service economy, and looks to deliver a prosperous future for its people, unlocking the potential of the nation’s places needs to be reconsidered.
  • Digital disruption: Short fuse, big bang (2012)
    Australia’s business and government leaders don’t need to look far into the future to see the new wave of digital disruption headed towards them. It is already here.
  • Where is your next worker (2011)
    Australia's problem in coming years won’t be a lack of jobs – it will be a lack of workers...

Find out more and register now to receive your copy of the latest Building the Lucky Country series report, What’s over the horizon? Recognising opportunity in uncertainty.

 

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Simon Rushton

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