2018 CCF Victorian Infrastructure Outlook Report 1 | Page 19

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While Private Consumption Expenditure is
forecast to grow at 2.6 per cent per annum over the
next 3 years, there is a downside risk to this forecast
if wages continue to remain muted. This will work to
supress household disposable incomes and consumer
spending. Additionally, if the cost of utilities continue
to rise (electricity prices jumped 9 per cent in the
most recent September quarter, largely a result of the
unforeseen Hazelwood shutdown and other policy
failures) this will further limit household’s ability to
spend.
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High-energy prices are also a downside
risk for Victoria’s manufacturing industry. If retail
and wholesale energy prices trend higher, not only
could there be a serious loss of output and jobs, but
potential investments may also not proceed. The key
in all of this is that even if gas and electricity prices are
eventually resolved, it is important to remember that
once domestic manufacturing capacity shuts down or is
moved offshore, it is unlikely that it will return home or
be re-started. Hence, the drop in manufacturing output
could be permanent. Manufacturing in general, and
the sub-sectors of basic non-ferrous metals (such as
Alcoa’s Portland Alumina smelter), non-metallic mineral
products (especially ceramics, such as bricks and tiles,
glass and cement clicker), petroleum, chemical, polymer
and rubber manufacturing, iron and steel and parts of
pulp and paper manufacturing are among the sectors
with both high gas intensity and high trade exposure,
which will suffer the largest impacts.
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Recent changes to stamp duty and the first
home owners buyers grant, that act to make property
more affordable for first home buyers, are an upside to
the Victorian economy. These policies could encourage
a faster-than-predicted pickup in demand for dwellings
and stimulate greater levels of residential construction
over the next few years than currently forecast.
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