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Tourism overtakes coal exports as services drive growth

Clancy Yeates

Unofficially at least, the country goes back to work this week after the extended silly season between Christmas and Australia Day.

That may seem a longish break. But for the economy, the fact so many of us have taken a domestic trip away in the last five or six weeks for a stay at the beach, the bush, or wherever, highlights an industrial bright spot: tourism.

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It gets little press compared with the swinging fortunes of the mining industry, but tourism is having its own boom, the size of which may surprise you.

How's this for a changing of the guard: Australia now makes more money selling tourism services to foreigners than it makes from exporting coal.

Annualised tourism exports of $47 billion, based on September quarter figures, were greater than those two stalwarts, rural exports at $42 billion and coal at $41 billion.

Iron ore is still our biggest export, and coal may yet make a comeback, but you get the picture.

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Or get this: one measure of tourism's strength has improved by more than after the Sydney 2000 Olympics.

In the last few years. the rebound in "net" tourism arrivals (short-term arrivals minus short-term departures) has been far bigger than the boost after the 2000 Games.

Those numbers, crunched by UBS economists led by Scott Haslem, illustrate how tourism is enjoying the good times, even as many other parts of the economy remain patchy.

The reason economists are highlighting the tourism boom is because services exports – which also include education, and business services – are in some ways the economy's unsung heroes, long overshadowed by the more cyclical mining and housing sectors.

Indeed, strength in the services sector is a key reason the September quarter contraction in growth was probably a blip, and why growth should pick up in 2017.

The weaker Aussie dollar is a big part of this story, of course. The lower currency not only makes Australia cheaper for foreigners to visit, it also deters more of us from travelling overseas, prompting more of us to holiday here.

The number of short-term arrivals to Australia is now rising at the cracking pace of 10 per cent a year, whereas growth in the number of people heading overseas has halved to just 3 per cent.

But why does this matter for the broader economy?

The boom in tourism is important because it represents the rise of the broader services sector. Services are helping to fill an almighty hole left by declines in business investment or "capital expenditure".

Mining capex, as it's known, reached a record high 9.6  per cent of gross domestic product in 2012-13, and economists think it will settle at around 3 per cent. That is a huge contraction that's been occurring over the past five years, dubbed the "capex cliff".

Of course, tourism creates jobs in industries like hospitality, but such has been the surge in tourism that it's also unleashing its own investment boom.

As businesses jostle to cater to the new wave of arrivals, the pipeline of potential resorts and the like has jumped to almost $20 billion, Deloitte Access Economics estimates.

Airlines are also opening new routes to Asia – Qantas restarted direct flights to Beijing last week – and some in the business are calling for tourist infrastructure such as airports to be upgraded.

When you put all these trends together, the net result is that services exports are providing the economy with a "tailwind" at a time when it sorely needs one.

HSBC's Paul Bloxham says the economy has been "rebalancing" over the past five years away from a mining-led boom, with a housing boom and rising services exports picking up much of the slack.

This year Australia is approaching a turning point because mining investment stops falling, and the residential building boom will also probably slow. That leaves people to ask what fills the gap.

"The question is, what's left? And the answer is services," Bloxham says.

Bloxham points out that, in the past two years, net services exports have gone from being a drag on gross domestic product to a positive. He estimates net services exports – led by tourism, education and business services – will add between 0.25 and 0.5 per cent to GDP growth this year.

To be sure, moving to an economy that's less dependent on mining investment also comes with costs.

Tourism jobs can have less regular hours, and often lower pay, than the jobs in mining that have been wiped out. The replacement of high-paying mining jobs with those in lower-paying sectors is one reason for the low wage growth and underemployment in many mining-heavy areas.

Much of the inbound tourism boom is concentrated in Sydney and Melbourne, rather than the regions that probably need the boost much more.

Even so, the rise of services provides some good economic news as the holiday season comes to an end.

It's one reason why many economists say that, despite the turbulent state of the world, this year should be a stronger one for the Australian economy.

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