Report: Queensland's Economic Outlook 2024

The 2024 Queensland Futures Institute’s Queensland’s Economic Outlook covered a range of critical topics impacting the state’s economy. The discussions focused on the opportunities presented by the 2032 Brisbane Olympics, infrastructure development, population growth and the natural resources sector. These are all seen as key drivers of future investment and
economic growth. The panel also highlighted the need for increased productivity as a potential solution to many of Australia’s economic challenges.

Concerns around housing shortages and affordability were highlighted as significant challenges, which are exacerbated by high construction costs and an aging workforce. Another key
challenge for the state is that of geopolitical risk which brings uncertainty around global trade, investment and supply chains associated with disruption of the global economy

SPEAKERS

Garnet Hollier
Chief Financial Officer
Brighter Super

Richard Yetsenga
Chief Economist
ANZ

MODERATOR 
Gene Tunny
Director
Adept Economics

Garnett Hollier

• Brighter Super as a brand is two years old – but the fund itself is 60 years old,
  following a recent three-way merger. We are proud of our Queensland heritage, with
  75% of our members living and working in the state.
• We are a long-term investor, with $32 billion in funds under management – making
  Brighter Super the 16th largest pension fund in the country and the 271st globally.
• Last year’s economic outlook saw several headwinds – but this year we are seeing
  strong tailwinds and opportunities. These include:
  • The 2032 Olympics, which provides a major opportunity to leverage the Brisbane
    brand, boost tourism and economic activity.
  • Strong infrastructure demand – with $94 billion expected to be spent over the next
    four years, driven by projects like the Cross River Rail and pedestrian bridges.
  • Population growth – which will be boosted by interstate migration and increase
    demand for essential services and infrastructure.
• However, we must address the key challenge of housing, which is essential for
  handling population growth.
• Finally, natural resources – including projects tied to the Queensland Energy and
  Jobs Plan – is another significant opportunity. This sector will be critical for meeting
  Queensland’s renewable energy targets of 50% by 2030 and 70% by 2032.
• However, the confluence of these opportunities and developments creates a risk –
  especially around labour, materials and construction which will lead to cost pressures
  if not managed.
• As such, balancing policy levers will be key to seizing the opportunities ahead.

Dr Merriden Varrall

• Queensland’s economy cannot be considered separately from the broader
  geopolitical context and risks we are currently seeing play out.
• Australia is a trading nation – and Queensland is a trading state with a diversified
  but relatively exposed economy – so it is critical for Queensland’s economic future to
  have a stable and predictable trading environment.
• This includes respected rules, stable markets and a growing middle class to buy
  Australian products – as well as stable and secure supply chains.
• This is being challenged by geopolitical volatility as trade and investment are
  becoming tools of power and security.
• This can be thought about as strategic and systemic competition:
  
  • Strategic competition considers who has the most power and influence; and
  • Systemic competition considers the shape and nature of the very system.
• For example, geopolitical volatility isn’t just about one country trying to be more
  powerful than another, but also about shaping the international system itself.
• Some developing or emerging countries are challenging the current order.
  Although these countries don’t share a unified vision, they are challenging the
  predominant liberalised, U.S.-led world order – which is what Queensland relies on
  in order to thrive.
• Trade and investment are increasingly being used as tools of competition, or
  ‘weaponised’. While we have seen an ‘offensive’ component through the use of
  trade and investment barriers, a growing number of governments are also using
  ‘defensive’ components to protect their national interests through increasing onshoring,
  friendshoring and friendsourcing, particularly in critical sectors – and the definition of
  critical is expanding.
• Protectionism is rising – including in the US, which is now pursuing “Made in America”
  instead of trade liberalisation. This is a clear reversal of logic from global openness in
  decades past.
• While businesses have largely followed economic logic and will likely continue doing
  so – rather than incorporate this geopolitical risk aversion – governments are
  intervening more in strategic areas like critical minerals which will have an impact on
  private investment.
• The key considerations for Queensland in the near-term are the upcoming U.S.
  election – and the potential for internal disruption in the U.S. to drive further
  protectionism and more trade restrictions. This is because the U.S. is the leading
  foreign investor in Australia.
• However, industries will be affected differently. Change may bring opportunities if
  businesses and industry are prepared to take advantage of this. Businesses should be
  undertaking scenario modelling, dynamic risk assessments and tracking geopolitical
  trends to find these opportunities.

Richard Yetsenga

• ANZ operates in 29 markets and recently acquired over a million customers through the
  Suncorp deal.
• Risks and opportunities can often become conflated – especially in the geopolitical
  space – as change can be both a risk and an opportunity.
• For Queensland, the economic risk from outside Australia centres around China. While
  some may argue the economic issues in China are cyclical or that policies can change
  the trajectory, the country is actually facing structural issues from its demographics,
  debt levels, and its role as the world’s largest trading nation in a world trading less.
  These are significant constraints which cannot be easily resolved. This means that as
  they bind, the economy will slow.
• China’s slowing economy is freeing up capital, benefiting countries like Singapore,
  Vietnam and India.
• There is a clear shift in Asia’s focus, and Australia’s engagement with ASEAN
  reflects this.
• For Queensland, it’s no longer just about one customer (China); but there are now
  multiple opportunities across Asia.
• Another risk for Queensland is not taking full advantage of our opportunities, like
  the Olympics and the pipeline of infrastructure projects. However, this isn’t just a
  Queensland problem as other parts of Australia face it too.
• The final challenge is housing and migration: Brisbane’s median dwelling price is
  now higher than Melbourne’s, which is affecting migration flows into Queensland.
  Migration is slowing, and that will have an impact on both demand for sectors and
  the labour supply.
• Housing remains the biggest intergenerational challenge. There is no single
  solution to it, and Australia’s 11 million dwellings for 27 million people
  suggest it’s more of an allocation problem than a shortage.

Can Super play a role in housing investment, and is Brighter Super investing in housing?

Garnett Hollier

• Greater levels and access to capital through superannuation may not solve the housing
  issue, but superannuation funds potentially have a role in addressing housing.
• In Australia, Brighter Super have several projects, including delivering accommodation
  for the Department of Defence, and an essential worker project in Parramatta.
• Our largest investments in housing are in the U.S., where the market is very different
  – with 40% of rentals institutionally owned. Brighter Super are developing a 400-unit
  complex near Fenway Park in Boston. The economics there are favourable, with rental
  rates similar to Manhattan.
• We’re looking at live opportunities in Brisbane in built-to-rent and affordable housing,
  but we haven’t placed any investments yet.
• One challenge is figuring out when in the cycle to invest. Turnkey developments
  are ideal as they carry the least risk, but there aren’t many of those opportunities
  in the market.
• Taking on development risk can offer higher returns but comes with risks like high
  construction costs, which are especially high in Brisbane – second only to Sydney.
• However, the fundamentals in the Australian housing market are compelling:
  rental growth is high, and vacancies are low, so we are talking to fund managers
  about opportunities.
• For comparison, institutional investment in housing is higher in other markets, such
  as 16% in Germany and 2% in the UK, whereas Australia is still almost zero. As such,
  there is potentially an early mover advantage in the market.

Dr Merriden Varrall

• Given the level of volatility and activity, it is critical to think about everything happening
  overseas. The world has adapted to a certain level of instability, especially in the Middle
  East and with Russia and Ukraine.
• In Ukraine, we are likely to see the war stabilise, but Russia will continue trying to take
  more territory, and Ukraine will keep using drone strikes and asymmetric warfare.
• The risk of NATO getting involved more broadly has decreased, but the fundamental
  issue with Russia remains; Putin’s broader goal is to challenge the liberal
  U.S.-led world order.
• Putin isn’t just invading Ukraine for fun; it’s part of a larger vision for Russian
  expansionism, and as he gets older, he might be more desperate to achieve it.
• The instability in the Middle East poses a different challenge but is not necessarily a
  threat to global order. Major powers are generally acting cautiously to avoid
  escalating conflicts.
• A ceasefire seems unlikely, and Palestinians are becoming more radicalised, which is
  increasing the potential for terrorism within and beyond the region.
• For Australia, even though these events feel far away, there are implications like
  rising costs, energy supply concerns and supply chain disruptions.
• The overall impact of these conflicts is a more fractured international system,
  where rules and norms are being challenged, and trade flows are being
  unpredictably reshaped.

Richard Yetsenga

• There has been spillover from the Russia-Ukraine conflict – being the effects on global
  multinationals with businesses in Russia.
• This has raised questions about whether a similar situation could occur around China.
  This is likely contributing to the shift of capital to other regions.
• It’s hard to pin responsibility for inflation on specific areas of fiscal policy in Australia.
  While household stimulus in Queensland and federal tax cuts are meaningful, they
  aren’t the main reason inflation is staying high.
• Looking back over the last decade, government consumption and investment (for both
  federal and state) have grown at twice the rate of GDP and three times the rate of
  private demand. This shows how government involvement has increased across all
  areas of the economy – in housing, climate change, and defence.
• Recent federal budgets added $50 billion to the defence pipeline, alongside
  major infrastructure projects. These are all resource-intensive and necessarily
  government-driven.
• The RBA’s rate hikes, therefore, are impacting the private sector discretely, particularly
  private consumption, though business investment and government activity are still
  strong. Additionally, Australia is very export-dependent, so those sectors remain robust.
• The weakest player in the economy is household consumption.

Given current thematics such as critical minerals and energy transition, what opportunities does
Brighter Super see across Queensland and what are you investing in?

Garnett Hollier

• Brighter Super is exploring how to best be part of the energy transition, which is a
  competitive space.
• We already have investments in wind farms – one in Queensland and one in
  South Australia.
• Another investment thematic is tourism – we invest in airports, theme parks and
  light rail on the Gold Coast, which all support the influx of tourists, especially around
  the Olympics.
• Brighter Super also invests in healthcare, which is being driven by demographic shifts.
  We have a property portfolio of medical centres, including the Icon Integrated Cancer
  Centre in Townsville.
• We’re also exploring venture capital opportunities for Queensland companies.
• In regional Queensland, we support communities through investments like a marine
  logistics business in far north Queensland, and the Central Queensland Livestock
  Exchange in Gracemere.
• This highlights how investments can extend beyond Southeast Queensland to regional
  areas, where there are unique opportunities.
• As a mid-size fund, we can focus on smaller, impactful investments in regional
  Queensland. This contrasts to larger funds which go offshore for large deals.
• We’ve committed $500 million to investments in Queensland – a 50% increase,
  showing our optimism and dedication to real opportunities in the state.

Dr Merriden Varrall

• There’s a wide range of views about the potential conflict over Taiwan.
• Some estimate that the risk of conflict has risen from 10% to 20%, citing the CIA’s
  assessment that President Xi might be ready to invade Taiwan by 2027, even
  pinpointing a date considering tides and typhoons. This is a hawkish stance, but other
  views exist across the spectrum.
• While the likelihood seems low – at around 10% to 20% – the impact would be dramatic.
• It’s critical to not only consider geopolitical risk in terms of just probability and impact,
  but also consider velocity and risk of contagion.
• Even if the risk of China reintegrating Taiwan with the mainland seems low, events like
  a U.S. president declaring Taiwan an independent state, or internal problems in China
  could magnify this risk.
• As such, the impact on Australia depends on how the U.S. reacts and what we
  decide to do.
• If the U.S. responds with force, it could be catastrophic, and it’s widely believed the U.S.
  would not win, regardless of Australia’s involvement.
• This conflict would paralyse Australia’s economy – as well as the global economy,
  halting trade with China and other key Asian partners.
• Taiwan produces 70% of the world’s semiconductors and 90% of the most advanced
  chips, so production of technology-related goods would halt globally in the short-term.
• Another response to conflict would be the U.S. imposing financial or economic
  sanctions, which would see a similar response from China, causing heavy economic
  damage globally and to China itself.
• Given these risks, China is preparing to make its economy more resilient to Western
  sanctions through self-sufficiency, while the U.S. and its allies are working to deter
  China from making significant moves.
• Taiwan will remain as the core, non-negotiable interest for China, but China
  understands that force isn’t necessarily the only way to achieve integration, as
  exemplified by Hong Kong.

Richard Yetsenga

• We have big issues with tax in this country that need to be addressed.
• However, taxes are unlikely to go down any time soon; there’s no major political
  force suggesting cuts to defence, housing, climate transition, or infrastructure. If the
  government doesn’t have the fiscal resources, the tax system must change, but the idea
  of reducing taxes does seem to be on the table right now.

Richard Yetsenga

• I’m generally distrustful of focusing too much on the supply of new dwellings as we can’t
  address housing the same way as other sectors.
• This is because housing isn’t like manufacturing; when you ramp up housing
  construction, the cost per unit increases, unlike in manufacturing where costs go down
  with increased output.
• Demographics are also a headwind, given Australia’s ageing population. This means
  we will need to discuss more carefully the issue of who owns the existing stock of
  dwellings, and what constraints those choices impose on others.
• The politics around this issue are difficult and will take time to coalesce around
  agreement. This is why focusing on new supply alone won’t solve the problem.

Garnett Hollier

• This opportunity could naturally fit into early ideation strategies, which align with venture
  capital investments.
• However, as a superannuation fund investor, Brighter Super has a very long-term
  investment horizon. We must consider the needs of our current members, their age, and
  their investment timeframes when making decisions.
• While there is a role for capital in supporting early-stage ideas, this will likely remain a
  relatively small part of our overall portfolio.

Richard Yetsenga

• The younger generation is entrepreneurial in their own ways. There’s no doubt that
  areas such as AI and new technologies are being driven by young people.
• The traditional path of learning a skill, getting a job, starting a family, and buying a
  house is shifting. With housing and starting a family being delayed, choices are naturally
  changing for the younger generation.
• Queensland doesn’t have an issue with demand for these entrepreneurial
  developments, but rather, the challenge is execution and access to resources.
• The only policy agenda that truly matters to stimulate entrepreneurialism and growth is
  productivity. Economists agree that productivity is the only sustainable way to increase
  living standards.
• When we discuss delaying infrastructure projects, like in Victoria, or parts of the climate
  transition due to a lack of skills or resources, insufficient productivity is resulting in lower
  profits and wages than what should be being earned, and projects not being completed.
• We need to shift the debate away from the “to-do list” and focus on the “how-to-do-it”
  list, because that’s what truly matters.