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Tuesday, December 5, 2023

Mid-Year Review

Coming into 2021, I think many of us expected the economy to struggle as government stimulus came to an end and we felt the aftershock of a turbulent, to say the very least, 2020. However, to our great surprise and relief, the past six months have been extremely positive as we’ve seen the local economy go from strength to strength. 

Economy ‘at its best’ the word around town is that the local economy is the best it’s been in recent history (excluding tourism and international education), and it’s certainly the best I’ve seen it in eight years of living in Cairns. In many industries the December quarter was more prosperous than any other period in the past 20 years. 

Cars, boats, caravans, household goods and construction are all caught in a nation-wide boom that appears to be continuing to ride the momentum from last year’s stimulus. Construction and real estate in particular are surging, and I would even go as far as to say that Cairns is doing as well, if not better, in these industries than some of our southern counterparts.

Whilst some areas of tourism and hospitality are still a long way from a full recovery, other industries are offsetting their declines, allowing the local economy to remain strong. 

Beating expectations

The common concern going into the pandemic was that the Cairns economy would suffer in the same way it had in prior crises, for example the GFC. As a result, we were worried that house prices would fall, unemployment would rise and the local economy would shrink. Instead, house prices have strengthened and employment has remained strong.

At the end of 2020, there were concerns that the strong performance of late 2020 would start to subside as the sugar hit provided by government programs dropped. But here we are, six months after most major stimulus programs stopped and three months after JobKeeper finished, and the economy continues to perform strongly. While it’s no time for complacency, I think everyone would agree that we’re in a much better position than anyone expected a year ago.

The difference

Locally, Cairns as a community fared well throughout COVID. The city overall faced less disruption than major capital cities. The loss of large-scale events was not as significant for us, whilst lockdowns and the move to work at home impacted larger cities far more than our regional city.  In Cairns, we’ve been fortunate to see regulars continue to visit their favourite coffee shops and restaurants. On top of that, having such a large percentage of SMEs meant there was a much higher rate of eligibility for government stimulus in the region than cities with large corporations and headquarters. This has been further boosted by a return of people moving to regional areas.

Compared to prior crises, it is clear that whilst tourism is still a big driver of our local economy, the economy is far more diversified than prior to the GFC or pilot strike. Our current economic strength can be attributed to this stability in other industries, helped along by government programs and people moving to Cairns to enjoy what many see as a superior lifestyle in the new COVID world.

Some clouds on the horizon

There’s no doubt that the outlook at the moment is very sunny, but there are some clouds on the horizon that could bring a change in the forecast. The local tourism industry is far from back on its feet, and something as simple as a positive local COVID case before the June–July school holidays could send many local businesses into a tailspin. 

The region, much like the rest of the country, is also experiencing a severe skills shortage at the moment. A combination of suspended education and training during lockdown, a lack of motivation to work after JobKeeper and JobSeeker, and the loss of 150,000 temporary foreign workers across the country is seeing Cairns and surrounds in dire need of workers. These factors may turn out to be inhibitors to future growth. Longer term higher interest rates and decline in the cyclical construction and housing sectors could also be negatives for the local economy.

Overall rating

If we were giving Cairns a mid-year report card, I believe an A-/B+ would be appropriate. The region as a whole is doing extremely well, and the economy is the strongest we’ve seen it in years. The major issue holding us back is an as yet unattained full recovery in the tourism sector.

I believe now is the optimum time to continue to diversify and strengthen our economy for the future. Instead of allowing complacency to take over, Government and businesses should use the current crisis to make positive longer term changes. There are lots of positives out there, so now is the time to capitalise.

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