CommSec State of the States: July 2023

Overall results

• 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 a solid job market and strong population growth at a time of rising interest rates.
• But Australia’s state and territory economies are slowing in response to higher borrowing costs and price pressures.
• The future path of economies will depend on the response of inflation to higher interest rates.
• In the latest survey there is little to separate the top four of the state and territory economies.
• Tasmania has retained top spot in the State of the States’ economic performance rankings, improving its ranking on retail spending.
• Tasmania ranks first on equipment spending and dwelling starts.
• NSW remains in second position and has narrowed the gap with Tasmania. South Australia slips to third place.
• NSW ranks first on relative unemployment. South Australia ranks first on relative population growth.
• Behind NSW and South Australia in fourth spot is Queensland. Western Australia is fifth while Victoria slips to sixth. There is little to separate the top six economies.
• The ACT is ranked seventh ahead of the Northern Territory.
• We acknowledge that the decade-average method disadvantages the Northern Territory. Significant LNG construction over 2012–18 inflated a range of economic indicators. So we highlight rankings of economic momentum—that is, the annual growth rates for the eight indicators.
• Measuring annual growth of the eight economic indicators, NSW is first, ahead of Queensland with Western Australia, Victoria and South Australia in joint third place. The ACT is sixth, ahead of the Northern Territory and Tasmania.
• There are encouraging signs for the Western Australian economy. Western Australia leads other states and territories on annual growth rates for two of the eight indicators.
• NSW, South Australia, Tasmania, the Northern Territory, Queensland and the ACT all lead on one indicator.

Analysis

• While Tasmania remains in first position, it faces challenges from NSW. And while Tasmania leads on two indicators, it ranks eighth on relative population growth—pointing to slower economic activity ahead.
• NSW is the most consistent economy, leading on relative unemployment, and second or third on four indicators.
• Looking ahead, trends in population, the job market and housing should be closely monitored. As noted in the last survey, the potential for stimulus in the Chinese economy will be important for resources and tourism-focussed states.
• But clearly, the success achieved in lowering the rate of inflation will determine the path of interest rates and economic activity across all states and territories.

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 rates in the ACT and NSW both stood at 3.1 per cent in June. However, the NSW unemployment rate was 37.8 per cent below its decade average, while the ACT jobless rate was 19.6 per cent below its decade average. So NSW 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.

Read the report.