How are Australia’s states and territories performing?
Each quarter CommSec attempts to find out which state or territory is Australia’s economic leader. Now in its 14th year, the report also includes a section comparing annual growth rates for the eight key indicators across the states and territories as well as Australia as a whole, enabling comparisons in terms of economic momentum.
Overall the economic performances of Australian states and territories are being supported by strong job and commodity markets at a time of rising interest rates.
The future path of both housing and job markets will determine how economies perform over 2023.
For the first time in the 13-year history of the State of the States’ economic performance rankings, Queensland is in top spot. The previous best ranking for Queensland was second in the previous survey.
Queensland ranks first on relative population growth and relative unemployment and second on three indicators – retail trade, relative economic growth and housing finance.
Strong migration growth has provided momentum for the Queensland economy, assisted by a strong job market and an energy resources boom.
Tasmania is now in second position. South Australia has lifted from fifth to third. NSW, Victoria and ACT come next followed by Western Australia and Northern Territory.
In terms of the leading positions on the economic indicators, Queensland leads the rankings on relative population growth and relative unemployment.
The ACT leads on housing finance.
Western Australia leads on relative economic growth.
South Australia leads on construction work done and dwelling starts.
Victoria is top ranked on retail spending.
When looking across annual growth rates of the eight economic indicators, Queensland had annual growth rates that exceeded the national average on five of the eight indicators.
Analysis
Last quarter we noted that any of the top four economies could top the leader-board in the next survey. And we further noted that “momentum still lies with Queensland.” And the judgment proved accurate.
Last quarter Queensland lifted from fourth in the rankings to second – its best result. This quarter Queensland has gone one better, to be the best performing state or territory economies.
Queensland has benefitted from an inflow of migrants since the pandemic – especially people moving from NSW and Victoria. As a result, home loans and retail spending have been boosted together with economic activity more generally.
Tasmania slipped from first to second. South Australia improved from fifth to third. NSW improved from seventh to fourth. Victoria is joint fourth and the ACT is sixth, ahead of Western Australia and the Northern Territory.
The interesting question now will be how the rankings settle now that Covid-19 is not exerting the influence it played over 2020-2022.
The two focal points in coming months are housing and job markets. A solid job market will provide valuable support for the key indicators of housing purchase and retail trade.
Also the re-opening of China will be important for resources and tourism-focussed states.
Methodology
Each of the states and territory economies were assessed on eight key indicators: economic growth; retail spending; equipment investment; unemployment, construction work done; population growth; housing finance and dwelling commencements.
The aim is to find how each economy is performing compared with ‘normal’. And just like the Reserve Bank does with interest rates, we used decade-averages to judge the ‘normal’ state of affairs. For each economy, the latest level of the indicator – such as retail spending or economic growth – was compared with the decade average.
While we also looked at the current pace of growth to assess economic momentum, it may yield perverse results to judge performance. For instance retail spending may be up sharply on a year ago but from depressed levels. Overall spending may still be well below ‘normal’. And clearly some states such as Queensland and Western Australia traditionally have had faster economic growth rates due to historically faster population growth. So the best way to assess economic performance is to look at each indicator in relation to what would be considered ‘normal’ for that state or territory.
For instance, the trend jobless rate in the ACT stood at 2.9 per cent in December with Queensland’s jobless rate at 3.6 per cent. However, Queensland’s unemployment rate was 39.4 per cent below its decade average, while the ACT jobless rate was 26.1 per cent below its decade average. So Queensland ranks above the ACT on this indicator.
Except for economic growth, seasonally adjusted or trend measures of the economic indicators were used to assess performance on all measures. While preference was for trend measures, in many cases these have been suspended in the wake of the COVID-19 crisis. Rolling annual nominal data was used to assess economic growth.
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