NSW economic outlook June 2023

Unemployment is yet to start rising in New South Wales despite 12 interest rate increases from the Reserve Bank since May last year, Senior Economist Andrew Barker told a CEDA event on Tuesday.

“For Victoria and Queensland there's a trend where unemployment is starting to turn up – that's not even apparent in the NSW data yet,” Mr Barker said .

While job vacancies are sitting a little below the levels at which they peaked, Mr Barker said there aren’t indications of a major downturn yet.

“The latest data from the ABS in February shows that job vacancies still remain pretty strong,” he said.

“The good news is we're continuing to have low unemployment and great opportunities for people to get into the workforce who perhaps weren't able to when unemployment was higher.

“As the labour market does turn, and it should continue to turn, labour shortages should ease a bit.”

But Mr Barker warned there are structural reasons to expect that skill shortages will persist due to Australia’s ageing population, digital transformation needs and the specific skills needed for the clean energy transition.

International arrivals have also returned to pre-pandemic levels, providing a boost to key sectors.

“Relative to the comparable month in 2019, temporary work visa entrants into NSW have come back to the level they were at, which is positive,” Mr Barker said.

“It also underlines the importance of implementing the Federal Government’s migration review, where it pointed out that our skilled migration system has really stopped doing what it was designed to do – to bring in skilled labour targeted at the needs of the economy.”

However, the return to pre-pandemic migration levels is adding to the demand for housing.

“For specific data for Sydney, house prices are growing again and leading the way in terms of house price growth,” he said.

Increasing demand for housing and falling household size during the pandemic had a big effect on supply, estimated to have driven demand for more than 100,000 houses Australia-wide.

The tightness of the rental market also reveals the shortages in the housing market.

“In the past year, the rental vacancy rate has been hovering around one per cent, which is a very low rate that's led to upward pressure on prices,” Mr Barker said.

“In Greater Sydney rents are up about 30 per cent from the pandemic.

“That again feeds through to this cost-of-living crunch, which is particularly concentrated on low-income groups who can least afford to be paying a lot more for energy and also for rents as well.”