The Queensland economy grew a further 2.3 per cent in 2022–23, broadly in line with the 2023–24 Queensland Budget forecast of 2 per cent. The strong labour market and population growth, combined with significant public investment, have supported domestic activity.  

Overall, the outlook for Queensland economic growth is unchanged from Budget, with gross state product forecast to grow by 3 per cent in both 2023–24 and 2024–25.

Household consumption

Strong growth in labour income, a pick-up in population growth and the substantial savings accumulated during the pandemic led to real household consumption growing by a solid 3.0 per cent in 2022–23. However, this was a slowing of growth from the strong 4½ per cent per annum averaged across the 2 previous years, as households reduced discretionary spending in response to higher borrowing costs and other cost-of-living pressures. 

Consumption patterns that had altered during the COVID-pandemic continued to normalise during 2023, with a rebalancing towards spending on services appearing to have now mostly run its course.

Notwithstanding the wealth boost from the sharper and earlier than expected rebound in dwelling prices, elevated inflation and the lagged impact of higher interest rates are expected to continue to weigh on household budgets in the near-term and lead to a further slowing in real consumption growth in 2023–24. 

As inflationary pressures subside, growth in real household consumption is forecast to regain momentum in 2024–25.

Dwelling investment

Following 2 years of strong growth, dwelling investment in Queensland fell 6.1 per cent in 2022–23. Residential construction activity in 2022 was constrained significantly by material and labour supply shortages, poor weather and flooding, and several construction company insolvencies. 

However, there are clear signs that supply constraints are beginning to ease, particularly for materials, with new and used construction in September quarter 2023 12.2 per cent above its trough in June quarter 2022. Conversely, renovation activity, which is traditionally more discretionary in nature, has trended lower as higher interest rates impact household budgets.

Record low interest rates and substantial government stimulus drove strong increases in building approvals and lending indicators throughout 2020–21. However, given the supply constraints faced by the sector across 2021 and 2022, there remains a near-record value of residential building work in the pipeline. 

Supported by the continued easing of supply constraints, dwelling investment is expected to rebound strongly in 2023–24, followed by further moderate growth in 2024–25.

Business investment

Following declines in the 3 years to 2020–21, business investment recovered strongly in the subsequent 2 years as the economy rebounded from the COVID-19 pandemic, interest rates remained low and the labour market strengthened. Business investment grew by 9.3 per cent in 2021–22 and a further 5.2 per cent in 2022–23.

Over that period, strong business conditions and confidence, high commodity prices and capacity utilisation constraints all supported business investment, with these factors more than offsetting the impacts of the rapid growth in construction costs.

Consistent with the outlook at Budget, modest growth in business investment is still expected in 2023–24. While construction cost growth has moderated, indicators suggest that business confidence, conditions and capacity utilisation rates have eased over the past year. Higher interest rates and the anticipated continuation of commodity price softening will also moderate the outlook. 

Public final demand

Public final demand rose a further 4.5 per cent in 2022–23, its eighth consecutive year of solid growth, with public final demand growth averaging 4.9 per cent per annum over this period. Growth in public final demand is expected to remain robust in 2023–24 and 2024–25.

Public final demand will continue to be supported by the Queensland Government’s Big Build capital program, committing $96 billion over 4 years to essential economic and social infrastructure investment across the state, including substantial investment across regional Queensland. 

Overseas exports

High prices for Queensland’s key commodity exports have boosted the nominal value of Queensland’s goods and services exports which nearly doubled in 2021–22, before rising a further 11 per cent in 2022–23 to a record high of $144 billion. 

Overseas exports declined in real terms, falling by 1.7 per cent in 2022–23, reflecting a 5.4 per cent decline in goods exports, caused by unscheduled LNG maintenance and weather related supply constraints impacting coal volumes. This more than offset strong growth in services exports, as they recover from the impacts of the pandemic.

Overseas exports are expected to grow in 2023–24, as supply constraints previously affecting goods exports unwind and services exports continue to recover towards preCOVID19 levels.

Coal 

The volume of Queensland’s coal exports rose 1.0 per cent in 2022–23, stronger than the ½ per cent decline expected in the 2023–24 Budget, reflecting very strong exports in June quarter 2023. 

Since Budget, forecasts for industrial production growth in the majority of Queensland’s primary coal export destinations have been downgraded. As a result, demand for Queensland’s metallurgical coal is expected to be lower than anticipated at Budget in both 2023–24 and 2024–25. Partly offsetting this, thermal coal exports, to China in particular, have been stronger than forecast at Budget. Some of this strength is expected to continue into
2023–24 and 2024–25.

Overall, reflecting the continued unwinding of supply constraints experienced in recent years, Queensland’s coal exports are forecast to grow 5 per cent in 2023–24 and a further 8¼ per cent in 2024–25.

Premium hard coking coal spot prices increased strongly in September 2023, rising from US$268/t to US$333/t across the month, much stronger than anticipated at Budget. The surge in coal prices occurred following news of suspended truck operations at the Peak Downs mine. BHP also reported lower coal production in September quarter 2023 at its Goonyella mine, reflecting wash plant maintenance. As supply normalises, prices will adjust towards medium term anchors. 

PCI (pulverised coal injection) spot prices traded at an historic high relative to premium hard coking coal spot prices in 2022–23, following Russia’s invasion of Ukraine restricting demand for Russian PCI coal. At Budget, it was assumed PCI prices would remain elevated, relative to their historic discount to hard coking coal, over the forward estimates as demand for Russian coal remained constrained. However, across July and August, the PCI spot price fell sharply, towards its average discount to premium hard coking coal. PCI prices are now expected to remain lower than expected at Budget over the forecast period.

Thermal coal prices have moved broadly as expected since Budget and forecast prices are largely unchanged, with thermal coal prices expected to continue to ease across 2023–24 but remain above their historical long-run average price across the forecast period.

LNG 

The volume of Queensland’s LNG exports fell 5.8 per cent in 2022–23, largely due to maintenance issues at one of the LNG plants on Curtis Island and tightness in the domestic market. However, the Australian Competition and Consumer Commission is forecasting adequate supply in the East Coast Domestic Gas Market in
2023–24, which should support a rebound in LNG export volumes. 

Most of Queensland’s LNG exports are sold under long-term contracts linked to global oil prices, with several months’ lag. Elevated oil prices in recent years have driven the value of LNG exports to record highs, growing by 24 per cent to $24.1 billion in 2022–23, following growth of 104 per cent the previous year. The value of LNG exports is expected to decline gradually over coming years, in line with moderating global oil prices. 

However, there is considerable upside risk to oil prices if the conflict in the Middle East escalates or broadens and results in any significant impact on oil producing countries in the region.

Metals 

Metals production rebounded in September quarter 2023, with most operations returning to normal production levels following lower production volumes early in the year. With several processors also increasing output, including from the Sun Metals zinc refinery expansion, the volume of metals exports is expected to rebound strongly in 2023–24.

As noted at Budget, anticipated zinc/lead and copper mine depletions are reflected in the forecast profile from 2025 onwards, including the closure of Glencore’s Lady Loretta and Mount Isa copper mining activities. However, Glencore recently confirmed it intends to extend the life of the Mount Isa smelter and Townsville refinery beyond 2026, with these assets reliant on third-party feedstock from within Queensland and elsewhere. 

With several projects awaiting approval and substantial exploration expenditure, particularly for copper, these factors could provide some support to metals exports in coming years. In addition, increasing activity in critical minerals is providing opportunities beyond Queensland’s traditional industrial metals, although the timing and extent to which specific projects proceed, and output is exported, remains uncertain.

Agriculture 

The volume of Queensland’s agriculture exports rose by 4 per cent in 2022–23, driven by an increase in cotton and crops exports, as higher than average rainfall during late 2022 and early 2023 boosted production. Agriculture exports are expected to grow further in 2023–24, driven by beef as drier weather conditions associated with the onset of the El–Niño weather pattern incentivises farmers to sell cattle quickly and increase processing rates. 

Looking ahead, growth in overall agriculture exports is predicted to slow to 1 per cent in 2024–25, as drier conditions inhibit production and exports, particularly for water sensitive commodities such as cotton and crops, despite continuing to encourage further beef processing and exports.

Services 

Following the re-opening of international borders, both tourist arrivals and commencements of international students have risen strongly. The relaxation of travel restrictions in China from January 2023 has also seen that key market start to recover.

The recovery has been especially pronounced in the education export sector, with international student arrivals now close to 2019 levels, while student commencements now exceed pre-COVID levels. However, tourist arrivals have continued to face capacity constraints and higher airfares which have, so far, prevented a full recovery to preCOVID levels (Chart 3). 

Chart 3: Overseas arrivals¹, Queensland

Consistent with the outlook at Budget time, the ongoing gradual increase in airline capacity is expected to underpin continued recovery in tourist arrivals. However, this does appear to be taking somewhat longer than expected and, together with continued global economic instability, has led to a small downward revision in the forecast growth rate of tourist arrivals. 

At the same time, the recovery in new student commencements will flow through into growth in the number of student enrolments and the overall outlook remains for continued strong growth in services exports.

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