Big wheels keep on turning

It seems to run parallel with the resources boom, but talk of a 'two-speed' economy has no foundation.

THE re-emergence of the mining boom - temporarily derailed as it was by the global financial crisis - as a key economic driver for Australia has been accompanied by a revival of the talk about a "two-speed" economy, the same talk that became commonplace during the first phase of the boom.

This talk holds that the mining sector is booming while the rest of the economy is "struggling". It similarly holds that the north and west of the country are powering ahead while the south-east (where the bulk of the population lives) is stagnating. The inevitable conclusion is that the federal government ought to do something about it.

This talk was simplistic then, and it is simplistic now.

Significant divergences in the economic fortunes of different regions or sectors of an economy as large and diverse as Australia's are by no means unusual.

In the past two decades, there has never been a gap of less than 2 percentage points between the annual growth rates of the fastest and slowest-growing states or territories. And that gap has actually been smaller in recent years than it used to be. Over the past five years, the margin between the growth rates of real gross state product of the fastest and slowest-growing states or territories has averaged 3.7 percentage points - 1.5 percentage points less than this margin averaged during the 1990s, and during the first half of the past decade.

More formally, the standard deviation of the annual growth rates of the eight states and territories has declined by about half of 1 percentage point over the past decade.

That is, there is substantially less divergence among the growth rates of Australia's states and territories than there used to be.

Likewise, although the spread between the highest and lowest unemployment rates among the states and territories is now wider than it was during the financial crisis, at 2.8 percentage points, it is well below the averages of 3.6 percentage points during the first half of the 2000s and 4.5 percentage points during the 1990s.

There's also much less divergence in economic performance in Australia than there is in comparable federations. The standard deviation of the growth rates of Australia's states and territories over the past four years has been half that of American states, and a little over a third that of Canada's provinces and territories over the same period.

Similarly, the divergence in economic growth rates across the different sectors of the Australian economy has actually lessened in recent years.

Not including the farm sector (where economic fortunes are heavily influenced by the vicissitudes of the weather), the standard deviation of the growth rates of the 18 other sectors of the economy has been lower over the past five years than during any other five-year period since at least the first half of the 1990s.