2     Tasmanian Economy

Key Issues

·       Tasmania has performed particularly well over the past two years, reflecting the strong position of the economy prior to the onset of the COVID19 pandemic, the overall successful management of the virus in Tasmania, and the effective transition to living with COVID19. Growth going forward is forecast to moderate reflecting the expected slowdown in the global economy. However, the outlook for Tasmania remains positive.

·       Building on strong growth of 4.3 per cent in 202122, the Tasmanian economy is expected to continue to grow by 1½ per cent in 202223. The more subdued growth expected for 202223, and over the forecast period, reflects the impact on the Tasmanian economy of high inflation, rising interest rates and other global events. Growth is expected to pick up slightly over 202324 and 202425, with forecast growth of 2 per cent and 2¼ per cent, respectively.

·       Tasmanias labour market remains strong. In March 2023, employment was at its highest level, while the unemployment rate remained at a historically low level at 3.8 per cent. Reflecting the strong performance in the labour market seen throughout 202223 so far, employment is expected to grow by 2½ per cent in 202223, well above the longterm average. Following this strong result, employment growth is forecast to slow in 202324, to ½ of 1 per cent, consistent with the expected slowing of the economy, before returning closer to the longterm average in 202425, with forecast growth of 1 per cent.

·       The unemployment rate is expected to remain low, with a yearaverage rate of 4 per cent forecast for 202223. While the unemployment rate is forecast to rise in 202324, to 4½ per cent, this rate continues to be low by historical standards. Labour force participation is expected to remain above its longterm average over the forecast period, with the forecasts improving compared with those presented in the 2022‑23 Budget.

·       With domestic and international border restrictions now removed, migrants have started to return to Tasmania, with migration expected to build up over the forecast period. The population is expected to grow at around the longterm average of 0.7 per cent in 202223, before picking up in 202324 to grow by 0.9 per cent.

·       These forecasts have been developed using available information at a point in time, and their likelihood will be influenced by the uncertain evolution of risks and policy settings. In particular, the current inflationary pressures, and associated policy responses, pose a risk to the outlook for the Tasmanian economy, as well as the national and global economies. Current and ongoing global events also continue to pose a risk to the outlook, particularly in relation to the cost and availability of certain goods and the stability of the global financial system.

Economic Outlook

The Tasmanian and Australian economies have recovered well from the impacts of the COVID19 pandemic, with both Tasmania and Australia transitioning to living with COVID19 in 2022. The Tasmanian economy has continued to perform particularly well, with Tasmania experiencing the second highest growth over the past two financial years, behind only South Australia. State labour force indicators have also been positive, with high employment, low unemployment and historically strong rates of participation for Tasmania.

However, during 2022 and 2023, inflation, both at a national and global level, has emerged as a key economic challenge. The impacts of inflation, and the policy actions to address this, are expected to result in a more subdued economic outlook.

Global and National Economic Environment

While the economy has continued to recover from the pandemic, events throughout 2022 and 2023, including the Russian invasion of Ukraine and the flooding events across Australia, have caused large disruptions. Since the release of the Revised Estimates Report 2022‑23, a number of additional challenges have emerged. In March 2023, the global banking sector experienced considerable disruptions in both the United States and Switzerland, including the collapse of a number of United States banks. While the impact of these events was contained, the risk of further banking sector stress, along with the persistence of global inflation and the emerging effects from the rapid tightening of monetary policy, has led to a deterioration in the global outlook. Following these disruptions, global growth expectations have moderated, though they are still forecast to be positive.

As outlined in the 202223 Revised Estimates Report, the World Bank, in its January 2023 Global Economic Prospects report, had revised down its forecast for the global outlook to 1.7 per cent growth in 2023, 1.3 percentage points below its previous forecast in June 2022. This revision reflected policy tightening aimed at containing high inflation, worsening financial conditions and continued disruptions from Russia’s invasion of Ukraine.

More recently, the International Monetary Fund has released its April 2023 World Economic Outlook, with its projections for 2023 and 2024 reflecting a slight deterioration in the outlook compared with its projections in its January 2023 World Economic Outlook Update (Chart 2.1). The IMF expects the world economy to grow by 2.8 per cent in 2023 and 3.0 per cent in 2024, both 0.1 of a percentage point lower than expected in January 2023. The IMF notes that the deterioration in the outlook since early 2023 reflects inflation remaining stubbornly high, as well as the recent financial sector instability. The IMF has outlined the key risks to the outlook, noting that they are heavily skewed to the downside. In particular, it has highlighted risks around further financial sector stress that results in a sharp deterioration in financing conditions; the spreading of sovereign debt distress; the war in Ukraine intensifying, leading to more food and energy price spikes; and core inflation being more persistent than anticipated, requiring even more monetary tightening.


 

Chart 2.1:         Global Economic Growth

Global Economic Growth
The chart shows that Global Economic Growth was negative 3.1 per cent in 2020 as a result of the COVID-19 pandemic. Global Economic Growth rebounded in 2021 to 6.2 per cent, before moderating at 3.4 per cent in 2022.  The April 2023 report projects growth of 2.8 per cent in 2023 and 3.0 per cent in 2024, which were revised down slightly from the January 2023 report projections of 2.9 per cent and 3.1 per cent, respectively.

Source: World Economic Outlook, International Monetary Fund.

 

Despite large parts of Australia experiencing lockdowns in 202122, the Australian economy performed well, growing by 3.7 per cent over the year. The national economy has continued to grow over the first two quarters of 202223 and is now 7.2 per cent larger than its prepandemic level, three years earlier. The national labour market remains tight, with employment peaking in March 2023, and unemployment remaining at a record low of 3.5 per cent, where it has been for the previous seven months.

The Australian Government released its 202324 Budget on 9 May 2023. The Australian Treasury expects real gross domestic product to grow by 3¼ per cent in 202223, consistent with the forecast presented in the 202223 Australian Budget, released in October 2022. The Australian Treasury forecasts that economic growth will slow to 1½ per cent in 202324, before strengthening to grow by 2¼ per cent in 202425.

As outlined in the 202324 Australian Budget, the Australian Treasury expects that the persistent tight labour market will continue to put upwards pressure on wages, with national wages growth expected to accelerate to its fastest pace in over a decade.

Australia’s population is expected to grow by 2.0 per cent in 202223 and by 1.7 per cent in 202324, driven by strength in net overseas migration which is expected to reflect the oneoff catch up following the pandemic. Further growth of 1.5 per cent is forecast for 202425.


 

Recent Performance, Forecasts and Projections of the Tasmanian Economy

This chapter presents Treasury’s forecasts for key Tasmanian economic indicators for 202223, 202324, and 202425, and projections for 202526 and 202627 (Table 2.1).

There is always uncertainty in the outlook for the economy, as has been particularly evident in recent years. Global inflationary pressures and the future path of associated policy responses across countries are continuing to create increased challenges in economic forecasting. The forecasts included in this chapter use a number of assumptions and judgements that are based on information available at the time of preparation and are inherently uncertain and subject to change. While events or changes to policy settings occurring after the finalisation of these forecasts may affect the likelihood of some of the underlying assumptions, it is not possible to reflect the impact of such events in the information presented in this chapter. Further information on the approach used to develop forecasts and projections is described in Box 2.1.

Table 2.1:         Economic Actuals, Forecasts and Projections

 

 

 

Budget 202324

 

202122

 

202223

202324

202425

202526

202627

 

Actuals

 

Forecasts

Projections5

Gross state product (real, % change)1

4.3

 

2

State final demand (real, % change)1

5.7

 

2

2½

Employment (yearaverage, % change)2

3.0

 

2½

½

1

1¼

1¼

Labour force participation rate (yearaverage, %)2

62.0

 

62½

62¼

62

62

62

Unemployment rate (yearaverage, %)2

4.4

 

4

Consumer Price Index (year‑average, % change)3

5.0

 

2½

2½

Population (year‑average, % change)4

0.7

 

0.7

0.9

0.9

0.7

0.7

 

 

 

 

 

 

 

 

Source: Actuals ‑ Australian Bureau of Statistics; Forecasts and projections ‑ Treasury.

Notes:

1.    State final demand actual is an ABS estimate calculated using the December quarter 2022 National Accounts data, while gross state product is calculated using the 202122 ABS State Accounts data.

2.    Labour force actuals are ABS estimates calculated using the March 2023 data.

3.    The Consumer Price Index actual is an ABS estimate calculated using the March quarter 2023 data.

4.    Population actual is an ABS estimate calculated using the September quarter 2022 data.

5.    The projections are based on the longterm average growth rate of the indicator, except for the unemployment rate and the participation rate, which reflect the expected rate of the indicator for 202425.


 

Box 2.1 ‑ Treasury’s forecasting approach

Since the onset of the COVID‑19 pandemic, Treasury has developed economic forecasts and projections using a methodology that relies less on historical trends and more heavily on timely data produced by the Australian Bureau of Statistics.

As a small jurisdiction, some of the key data for Tasmania are more volatile and less reliable than for the larger states, including data relating to the labour force and gross state product and its components, such as interstate and international trade. Data are also subject to revision. These revisions can have a greater impact for smaller jurisdictions. A recent example of this is the significant revision to Tasmania’s population data, and subsequently Tasmania’s labour force, following the release of the 2021 Census of Population and Housing and the associated rebasing of the Estimated Resident Population data by the ABS.

Year‑average forecasts and projections

Where data are reported frequently, such as employment growth, the unemployment rate and population growth, Treasury’s economic forecasts and projections featured in Table 2.1, are presented on a year‑average basis.

Reporting in year‑average terms provides a better overall measure of a particular indicator taking into account fluctuations that may have occurred throughout the year. Most Australian jurisdictions report economic indicators on a year‑average basis.

A year‑average value is calculated by taking an average of the monthly or quarterly levels of an indicator over a year, while a year‑average growth rate is the percentage change in the year‑average compared with the previous year.

This calculation approach differs from point‑to‑point growth, which is calculated as the percentage change from one period to another period.

Year‑average growth rates can vary from annual point‑to‑point growth rates because:

·       monthly or quarterly levels can move up and down, which means that the average level for the year can be very different to the level in the starting or final month or quarter of that year; and

·       point‑to‑point calculations are very sensitive to the level at the end or start of each period.

 

Projections

For the final two years of the Forward Estimates, projections, not forecasts, are presented in Table 2.1.

The use of projections is relatively common across Australian jurisdictions, reflecting the level of uncertainty involved in forecasting a number of years into the future.

Projections differ from forecasts in that they are generally based on the long‑term average growth rate of the economic indicators. However, unemployment and participation rates are proportional measures rather than measures of growth and often differ from their long‑term averages for extended periods. Therefore, these rates are projected forward using the last forecast rates for 2024‑25.

 

 

 


Economic Activity

In 2021‑22, the Tasmanian economy continued to perform well, growing by 4.3 per cent, which also followed growth of 5.0 per cent in the previous year. This growth was higher than the national growth rate and reflected strong performance across all key components, though particularly for government expenditure and household consumption.

This strong performance also builds on previous years of sustained growth, with Tasmania being the strongest performing state economy in the country over the past five years (Chart 2.2).

Chart 2.2:         Gross State Product

Gross State Product
The chart shows that GSP of most states increased from 2016-17 to 2018-19 before dipping the following year in 2019-20, then increased again during 2020-21. The GSP for most jurisdictions has grown strongly since 2020-21, with Tasmania showing the strongest growth of the states.

Source: Australian National Accounts: State Accounts, ABS.

 

Further detail on measures of economic activity discussed in this section is provided in Box 2.2.


 

Box 2.2 ‑ Gross state product and state final demand

State final demand measures the total value of goods and services that are sold in a state to buyers (who wish to consume them or retain them in the form of capital assets), and is represented by the following equation:

Where:

SFD = state final demand

C = consumption

I = investment

G = government spending

 

Gross state product measures the value of all goods and services produced within the state. Treasury’s forecasts are developed using the GSP expenditure method. This is represented by the following equation:

Where:

GSP = gross state product

SFD = state final demand

X = international exports

M = international imports

BI = balancing item (which includes interstate exports and imports, and changes in inventories)

SD = statistical discrepancy (which is the difference between the individual aggregate income, expenditure and production measures of GSP and the headline GSP measure)

 

 

The Tasmanian economy performed strongly in the first quarter of 2022‑23, recording the second highest growth in SFD of all states and territories. This was driven by increases in all the main components of SFD. Following this strong growth, SFD remained unchanged in percentage terms in the following quarter. This outcome reflected a flattening in household consumption along with increases in government consumption and public investment and a decline in private investment.

Private investment grew strongly through the pandemic, with high levels of dwelling investment, which was in part supported by the HomeBuilder Grant programs. While dwelling investment has been easing, and is expected to continue to do so, it remains at an elevated level (Chart 2.3). This investment continues to be supported by strong building approval numbers, which remain around the pre‑pandemic level, following the peak in approvals that occurred around the time of the HomeBuilder grants (Chart 2.4).


 

Chart 2.3:         Tasmanian Dwelling Investment

Tasmanian Dwelling Investment
The charts shows that dwelling investment trended upwards from mid-2017 but has eased since mid-2021.

Source: Australian National Accounts: National Income, Expenditure and Product, ABS.

 

Chart 2.4:         Tasmanian Building Approvals

Tasmanian Building Approvals
The charts shows that the number of dwelling approvals trended upwards from mid-2020 to its peak in mid-2021. The number of building approvals has since eased in 2022 and 2023.

Source: Building Approvals, Australia, ABS.

 

The final two quarters of 2022‑23 are expected to see more subdued growth in the Tasmanian economy, reflecting the impact of the higher interest rate environment and moderating global economic conditions on both household spending and private investment decisions. However, government expenditure is expected to remain at its current high level. Additionally, growth in government capital investment is expected to continue to be supported by a range of State Government infrastructure programs and projects.

Overall, both SFD and GSP are expected to grow by 1½ per cent in 2022‑23.

In 2023‑24, SFD is expected to grow above its long‑term average, driven by continuing strong government expenditure. In 2024‑25, growth in SFD is forecast to moderate, growing slightly below its long‑term average (Chart 2.5 and 2.6).

Chart 2.5:         Tasmanian State Final Demand

Tasmanian State Final Demand
The chart shows a consistent increase year-to-year in State Final Demand from 2021-22 to 2024-25.

Source: Actual ‑ National Income, Expenditure and Product, ABS; Forecasts ‑ Treasury.

 

Chart 2.6:         Tasmanian State Final Demand ‑ Contributions to Growth

 Tasmanian State Final Demand - Contributions to Growth
The chart shows the major contributors to growth of State Final Demand, with the largest contributor over the forecast period expected to be Government Consumption.

Source: Actual ‑ National Income, Expenditure and Product, ABS; Forecasts ‑ Treasury.

 

Household consumption is expected to grow through each of the four quarters in 202324, although at a lower rate due to reduced discretionary spending, including on components such as hotels, cafés and restaurants, recreation and culture, and furnishings and household equipment. The weaker growth reflects the continuing impact of higher interest rates, with households adjusting their spending accordingly. Reflecting pent up demand and strong recent performance, it is expected that tourism will continue to boost spending in related areas, such as transport services, though this will likely begin to ease over 202324 given the largely discretionary nature of travel. Similar to 202324, household consumption is forecast to grow at a low rate through 202425, reflecting expected global economic conditions and the higher interest rate environment.

Private investment is forecast to decline in 202324, with business investment remaining subdued. Since the onset of the pandemic, investment in machinery and equipment has grown strongly (Chart 2.7). Reflecting this current elevated level, along with a more constrained investment environment going forward, investment in machinery and equipment, in particular, is expected to fall, contributing to the overall forecast decline in private investment.

Chart 2.7:         Tasmanian Private Investment in Machinery and Equipment

Tasmanian Private Investment in Machinery and Equipment
The chart shows strong growth in Machinery and Equipment investment from 2020 to its peak in 2021 before easing until the June quarter 2022.  The September quarter 2022 saw an increase, before easing slightly in the December quarter 2022.

Source: Australian National Accounts: National Income, Expenditure and Product, ABS.

 

In 202425, private investment is expected to return to positive, albeit low, growth, with both dwelling investment and business investment growing at a reduced rate.

Strong government expenditure is forecast in 202324 and 202425, which will continue to support economic growth. This expenditure is expected to be driven by both strong consumption and very strong growth in capital investment. The growth in capital investment reflects a number of large investment projects, particularly the purchase of the TTLine ferries and the construction of the Bridgewater Bridge.


 

Services exports, while only comprising a small part of total exports, were significantly affected by the pandemic, with state and national border closures resulting in international tourism and international student arrivals reducing (Chart 2.8). Services exports are forecast to continue to recover strongly over 2023‑24 and 2024‑25, driving growth in international exports. Goods exports are forecast to remain unchanged in 202324, reflecting the expected global slowdown in the economy, before returning to moderate positive growth in 202425.

Chart 2.8:         Tasmanian International Exports of Services

Tasmanian International Export of Services
The chart shows a decline in the Export of Services from the December 2019 quarter to the March quarter 2021, remaining steady across 2021 and 2022.

Source: Balance of Payments and International Investment Position, Australia, ABS.

 

International imports are expected to grow strongly over the forecast period. While growth in goods imports is generally expected to be low, reflecting global economic conditions, it will be boosted by large purchases, such as the purchase of the TTLine ferries. Strong growth is also expected in services over 202324 and 202425, reflecting the continued return of international travel towards prepandemic levels.

Overall, these factors mean that the Tasmanian economy is forecast to grow by 2 per cent in 202324 and by 2¼ per cent in 2024‑25. Both years are forecast to grow below the long‑term average, reflecting the continued impacts from policy action taken to curb inflation, along with the expected global economic conditions. However, continued strength in government expenditure is expected to support the positive growth over the forecast period.

Labour Market

Tasmania’s labour market conditions over the past year have remained strong, with many headline indicators, including employment and the unemployment rate, performing at historical levels. As at March 2023, the ABS estimates that employment was at a series high with 291 800 persons employed in Tasmania (Chart 2.9). Tasmanian job vacancies, a forward‑looking labour demand indicator, continue to grow and were at a series high in the February quarter 2023, suggesting high future demand for labour in the State.


 

Chart 2.9:         Tasmanian Employment

Tasmanian Employment
The chart shows a steady increase in Tasmanian Employment numbers from 2013 to 2023 to reach a series high in March 2023. While employment levels were affected by the COVID-19 pandemic, they recovered quickly.

 Source: Labour Force, Australia, ABS.

 

While employment levels were significantly affected by the COVID‑19 pandemic, both male and female employment levels had recovered to around their pre‑pandemic levels by early 2021. Since this time, both male and female employment have continued to grow, with both at a series high in March 2023. Over the past year, the majority of growth in Tasmanian employment was attributed to the increase in female employment (Chart 2.10).

Chart 2.10:       Change in Tasmanian Male and Female Employment

Changes in Tasmanian Male and Female Employment
The chart shows an increase in both male and female employment. Both male and female employment were affected by the COVID-19 pandemic, with male employment experiencing a more significant reduction as a result in 2020.

Source: Labour Force, Australia, ABS.


 

Strong employment conditions have seen Tasmania’s unemployment rate fall to historically low levels in 2022‑23 (Chart 2.11). In March 2023, the ABS estimates that Tasmania had an unemployment rate of 3.8 per cent, the lowest rate on record for Tasmania. Meanwhile, the labour force participation rate has also continued to perform well over 2022‑23, averaging 62.5 per cent over the nine months of data currently available, which is well above the long‑term trend.

Chart 2.11:       Tasmanian Unemployment and Participation (reverse order)

Tasmanian Unemployment and Participation (reverse order)
The chart shows the improvement in both the unemployment rate and participation rate since 2013, with the unemployment rate reaching a series low in March 2023, while the participation was at a series high.

Source: Labour Force, Australia, ABS.

 

For the rest of 2022‑23, employment is expected to remain strong, with the series forecast to grow by 2½ per cent in year‑average terms in 2022‑23, well above the long‑term average growth rate. Reflecting the strong performance of the labour force in 2022‑23 and the resulting high starting base, along with the expected slowing of the economy, employment is forecast to grow by ½ of 1 per cent in year‑average terms in 2023‑24. In 2024‑25, employment growth is forecast to grow slightly below its long‑term growth rate, at 1 per cent in year‑average terms. It is anticipated that increasing overseas migration to the State will provide a boost to employment throughout the forecast period.

The labour force participation rate, which has increased over the past year, is forecast to be 62½ per cent in year‑average terms in 2022‑23. Over the following two years, the more subdued growth in the economy is expected to lead to the participation rate moderating slightly. The participation rate is forecast to be 62¼ per cent in year‑average terms in 2023‑24, while, in 2024‑25, the participation rate is forecast to be 62 per cent.

Over 2022‑23, it is forecast that the unemployment rate will be 4 per cent in year‑average terms, which would be the lowest financial year‑average value recorded in the history of the series. While the unemployment rate is expected to still be low in 2023‑24, it is forecast to increase slightly from the previous year to be 4½ per cent in year‑average terms. In 2024‑25, the unemployment rate is forecast to remain at its 2023‑24 year‑average value of 4½ per cent.


 

Prices

Tasmania and Australia have continued to experience strong growth in the Consumer Price Index (Chart 2.12). This growth has also been seen across the world, as many of the drivers of inflation have resulted from global issues. In particular, the pandemic led to a number of secondary impacts, which put pressure on prices as a result of supply chain issues and strong demand for various goods. Further, the ongoing Russian invasion of Ukraine has also had significant impacts, particularly on fuel and electricity prices. The Reserve Bank of Australia, along with many other central banks around the world, has been taking action to combat these inflationary pressures through tightening of monetary policy. It is expected that inflation peaked in Australia in the December quarter 2022.

Chart 2.12:       Growth in the Consumer Price Index

 Growth in the Consumer Price Index
The chart shows that the Consumer Price Index remained steady from 2017 until 2020 before seeing a decrease following the COVID-19 pandemic. The CPI then sharply increased from 2021 to 2023, with the Hobart CPI peaking at almost 9 per cent in the September quarter 2022.

Source: Consumer Price Index, Australia, ABS.

 

The Hobart CPI has continued to experience strong growth over the first three quarters of 202223, with throughtheyear growth of 6.9 per cent recorded in the March quarter 2023. However, the growth over the December quarter 2022 and March quarter 2023 has slowed slightly compared with previous quarters. This likely reflects, in part, the action taken by the Reserve Bank of Australia to curb inflation over the past year.

Since May 2022, the RBA has tightened monetary policy through raising the cash rate, in order to address inflationary pressures. Since that time, there have been 11 increases in the cash rate, with 10 consecutive increases up to March 2023. While the RBA left the cash rate unchanged in April 2023, it increased it further in May 2023, to be at its current level of 3.85 per cent. The RBA has stated that further tightening of monetary policy may be needed to ensure inflation returns to the target range of 2 to 3 per cent. The RBA expects inflation to return to the top of this range around mid2025.

Consistent with the RBAs forecasts for national CPI, the Hobart CPI is expected to continue to grow in the final quarter of 202223 and it is forecast that the series will grow by 7¼ per cent in yearaverage terms in 202223.

More moderate growth of 4¼ per cent is forecast for 202324. This lower growth compared with 202223 reflects the expectation that tightening monetary policy will be effective at reducing inflationary pressures, along with the expectation that the primary price impacts from significant events that occurred in 2022 will have largely been passed through. While there may be some remaining secondary effects, it is expected that the impacts from these will be more moderate. In 202425, yearaverage growth in the Hobart CPI is expected to ease further, with growth of 3¼ per cent forecast.

Both the Australian and Tasmanian labour markets remain tight. As a result, wages have been growing strongly, with annual growth in Tasmanian wages in the December quarter 2022 the highest in the country. Higher wage growth may contribute to further price growth over the forecast period.

Box 2.3 ‑ Impact of interest rate rises on housing and rental affordability

The tightening of monetary policy will have particular implications for housing, including housing affordability.

Housing and rental affordability and security have declined in Tasmania over recent years, with Tasmanians increasingly needing to contribute more of their household income to housing costs. While rising interest rates may put downward pressure on house prices going forward and influence housing affordability in the future, the full effects will likely take some time to emerge.

The impacts of the rate rises will have varying effects on different segments of the community, with those on lower incomes likely to be more significantly affected, particularly as housing costs take up an increasingly larger portion of household income. As noted earlier in this chapter, this is also likely to result in many households adjusting their discretionary spending, resulting in flow on impacts to the economy.

While rental affordability is lower in Tasmania than nationally, home ownership is relatively more affordable in Tasmania, with the average Tasmanian household spending less of their income servicing their home loan than nationally (Chart 2.13). Additionally, a higher proportion of Tasmanians own their own homes outright, compared with nationally.

Chart 2.13:       Housing and Rental Affordability

Housing and Rental Affordability
The chart shows that in Tasmania the proportion of family income required to meet loan repayments has remained below Australia. However, Tasmania has increased at a higher rate over 2022. The proportion of family income required to meet median rent has remained relatively stable in Australia since the June quarter 2017 whereas Tasmania has increased over the reporting period. However there was a slight decline for Tasmania in the December quarter 2022. The proportion of family income required to meet median rent is higher in Tasmania compared with Australia.

Source: Housing Affordability Report, Real Estate Institute of Australia.

Population

Tasmania’s population as at 30 September 2022 was 571 873, with an average growth rate of 1.6 per cent over the previous five years (Chart 2.14). Tasmania experienced strong population growth prior to the COVID‑19 pandemic, with three consecutive years of year‑average growth exceeding 2 per cent. Notably, the growth rate in 2018‑19 was 2.3 per cent, marking the highest year‑average growth on record. These years of above average growth were driven by positive net migration. While this growth was dampened by the closure of Australia’s international border in early 2020, along with domestic border restrictions implemented throughout the pandemic, Tasmania still recorded above‑average population growth in 2020‑21 of 1.2 per cent. Further growth of 0.7 per cent was recorded for 2021‑22.

Chart 2.14:       Tasmanian Estimated Resident Population

Tasmanian Estimated Resident Population
The chart shows that the Tasmanian Estimated Resident Population has steadily grown since 1993, with particularly strong growth since 2016.

Source: National, state and territory population, ABS.

 

As reflected in the 2021 Census data, Tasmania has seen a rise in the number of overseas migrants relocating to the State. Notably, this increase has been driven by a surge in the number of working age overseas migrants. According to the 2021 Census, the number of overseas migrants moving to Tasmania aged between 25 and 40 years had more than doubled since the 2016 Census while similar levels of overseas migration were seen in the other age groups (Chart 2.15).


 

Chart 2.15:       Overseas Migration to Tasmania over the past 20 years

Overseas Migration to Tasmania over the past 20 years
The chart shows that there was a large increase in the number of persons in the 2021 Census in age groups between 25 and 40 years that migrated to Tasmania from overseas since the 2016 Census.

Source: Census of Population and Housing, ABS.

 

This larger inflow of working age migrants between 2016 and 2021 has led to a significant change in Tasmania’s age structure (Chart 2.16).

Chart 2.16:       Tasmanian Population by Age and Sex at 30 September 2022

Tasmanian Population by Age and Sex at 30 September 2022
The chart shows the change in the Tasmanian population by age and sex from 30 September 2016 to 30 September 2022. While Tasmania’s population, on average, continues to age, the increase in persons aged between 25 and 40 is also evident.Source: National, state and territory population, and Data Explore, ABS.

 

As Tasmania’s population continues, on average, to age, migration will become increasingly important to maintain a working age population that can help support older Tasmanians.

At a regional level, data as at 30 June 2022 show that Clarence experienced the largest increase in population in absolute terms since 30 June 2016, growing by 7 673 persons. All local government areas except Flinders, which reduced by eight persons, reported positive growth over this period (Chart 2.17).

Chart 2.17:       Change in Tasmanian Population by Local Government Area, 2016 to 2022

Change in Tasmanian Population by Local Government Area, 2016 to 202
The chart shows that Clarence experienced the largest increase in population in absolute terms since 30 June 2016. All local government areas except Flinders reported positive growth from 30 June 2016 to 30 June 2022.

Source: Regional Population, ABS.

 

As overseas and interstate migrants continue to relocate to Tasmania, it is expected that net migration will be positive, supporting overall growth in the population of 0.7 per cent in year‑average terms in 2022‑23.

Population growth is forecast to build upon the growth in 2022‑23, to grow at 0.9 per cent in year‑average terms in 2023‑24. It is expected that this will largely be driven by higher levels of net migration to the State, as migration levels continue to build upon the gradual return of migrants seen in the previous year.


 

Risks to the Outlook

Consistent with the IMFs most recent views on the global outlook, the downside risks to the Tasmanian outlook have increased since the time of the 202223 Budget and the 202223 Revised Estimates Report.

With the successful transition to living with COVID19, the primary economic risk related to the virus has largely abated. However, residual risks remain around the potential future evolution of the virus, particularly if new strains or variants require the reimposition of restrictive public health measures.

The key risk to the current outlook is the inflationary pressures that are affecting global, national and state economies. There is a risk that inflation will prove to be more persistent, resulting in a significant global economic downturn or a prolonged period of subdued economic activity.

In Australia, the RBA has stated that further interest rate increases may be necessary to curb inflation, though the size and timing of any further increases remain uncertain as it will depend on how the economy and inflation evolve. As there is a lag between the timing of interest rate rises and the impact on the economy, the full effects of the previous increases are yet to be felt. Further increases may have significant impacts on the cost of borrowing across the economy, including for mortgage holders. In particular, there will be many mortgage holders whose low fixed interest rate mortgages expire over the coming year, who will be significantly impacted by the interest rate increases.

The RBA has acknowledged the narrow path that the Bank must navigate in managing monetary policy in reducing inflation while also supporting employment and economic activity. There is a risk that there will be a greaterthanexpected decline in the demand for goods and services, alongside a deterioration in consumer and business sentiment, resulting in a downturn in the economy.

One of the earlier contributors to inflation was the supply chain disruptions that occurred throughout the pandemic. While many of these disruptions have been easing and are expected to continue to do so, there is a risk that further disruptions could occur that would exacerbate inflationary pressures and impact economic activity.

With wages growth strengthening in recent quarters, there is also a risk that this increasing wage growth may then put further upwards pressure on prices, particularly given the limited spare capacity in the economy and the historically low unemployment rate at both the national and State levels.

At a global level, the performance of the global economy continues to pose a risk to the outlook. A slowdown in the global economy is expected over 2023, with an increased risk of economic downturns in some large western economies. These risks have been exacerbated in recent months by the issues that have occurred in the banking sectors in the United States and Switzerland, which resulted in significant volatility in financial markets. There is a risk that further instability in the global banking sector could result in adverse financial market conditions that cause widespread economic downturns, including in Australia and Tasmania.

Additionally, while China expects its economy to grow, if it were to experience an economic downturn, there would be material negative effects on the Australian and Tasmanian economies due to the strong trade links with China.

Current and ongoing global political events also continue to pose a risk to the outlook due to the potential for them to severely impact global prices and economic activity, which could spill over to the Tasmanian economy.