So it’s official, Olympic Dam is cancelled, with BHP taking an impairment loss to its books, which tells you they are not expecting to revisit it anytime soon. For Adelaide and South Australia, this is not just bad news, it’s a catastrophe.
The whole future of the State was being tied to the expansion of Olympic Dam, which may have added about 7% to gross state product p.a. Sure, SA unemployment was high and economic activity low, but that was only because they were waiting on the boom to arrive, according to the SA government. Olympic Dam was the easy answer for the SA government: Adelaide would join Perth with 10% p.a. growth, people would move into the State, unemployment would fall, and tax revenues rise. But it’s not to be; instead Adelaide is likely to fade back into it’s normal mode of being Australia’s slowest place.
What will be the impact? SA government and local officials are quick to paper over the impact, pointing to a number of other smaller projects that are underway, and putting on a brave face about Adelaide finding growth in other directions. SA is still turning over at steady levels, but as businesses de-gear and unwind their positions pending Olympic Dam, in the short term unemployment is likely to rise further, which will transmit further weakness into house prices. My feeling is that SA is heading to annual economic growth around 1% to 2%, while house prices won’t collapse, they are already cheap, but may soften a further 2% to 5% over the next year.