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NSW tops states for economic performance

NSW tops states for economic performance

CommSec's State of the States report looks at how Australia's states and territories are performing.

New South Wales has retained top spot as the best performing economy of the states and territories, according to CommSec's latest quarterly State of the States report.

Victoria has held on to second spot, but moved a touch further away from NSW. Both states are maintaining a healthy lead over the other states and territories.

Each quarter, CommSec finds out how the states are performing by analysing eight key indicators: economic growth; retail spending; equipment investment; unemployment; construction work done; population growth; housing finance and dwelling commencements.

Just as the Reserve Bank uses long-term averages to determine the level of ‘normal’ interest rates; we have done the same with key economic indicators. For each state and territory, latest readings for the key indicators were compared with decade averages – that is, against the ‘normal’ performance.

The ACT economy has improved over the quarter and held onto third spot.

And while the Northern Territory economy has held onto fourth place, there is now little separating South Australia in fifth (previously seventh) from the ‘top end’ economy.

The Queensland economy has moved down one rung from fifth to sixth.

The big change over the past quarter has been another drop in the Western Australian economy, this time to seventh position (previously sixth) just ahead of the Tasmanian economy. There is little to separate the bottom three-ranked economies.

NSW has retained its top rankings on population growth, equipment investment, retail trade, and dwelling starts and added economic growth. But NSW drifted to second spot on unemployment. NSW improved to third ranked on construction work and drifted to third on housing finance (previously second).

Victoria is solidly in second spot on the economic performance rankings. Victoria is ranked second on a number of indicators (economic growth, population growth, retail trade, business investment, construction work and housing finance). Victoria has moved from second ranked to fourth ranked on unemployment.

The ACT remains the third-ranked economy but has improved considerably. The ACT is top ranked on housing finance and third ranked on economic growth, unemployment and population growth. Housing finance is up 26.2 per cent on a year ago.

The Northern Territory holds fourth position and remains in top spot for construction work done and is also now best on unemployment. However the Territory economy is losing momentum, ranked last on population growth, business investment and housing finance, while sixth ranked on retail trade.

The South Australian economy is now fifth-ranked (previously sixth) and improved in the quarter. South Australia is middle ranked on population growth and housing finance and fifth ranked on economic growth. It remains last on retail trade.

Queensland shifts from fifth to sixth spot on the economic performance rankings. While second-ranked on dwelling starts, it is bottom-ranked on construction work and seventh-ranked on economic growth and unemployment.

Western Australia is now seventh and near the bottom of the Australian economic performance table. In two years the mining state has gone from first to seventh. WA is third on retail trade and is middle-ranked on construction work. But WA struggles on unemployment (last) and is ranked seventh on business investment, population growth, and housing finance.

Tasmania is in eighth position. The Apple Isle is fifth ranked on four indicators but is last on dwelling starts and economic growth.

Looking ahead

Currently we look at eight indicators to get the broadest assessment of economic performance. If we add new motor vehicle registrations to the list, the only change in the overall economic rankings would be Western Australia shifting lower to equal seventh spot with Tasmania in the rankings.

NSW has a solid grip on the top ranking of economic performance. Population growth is above long-term averages, thus providing solid momentum to the economy.

Victoria still has a strong grip on the second ranking, although it has drifted marginally away from NSW. Victoria has solid population growth and is second ranked on a number of indicators.

The ACT has comfortably held onto third spot in the performance rankings. Stronger housing activity and the lift in business investment will support the job market and retail spending over the coming year.

The Northern Territory is losing momentum, and as key resource projects are completed, activity levels will slow further unless a lift in investment takes place. Slow population growth, weak demand for housing loans and a sharp fall in equipment investment will constrain economic momentum.

The South Australian job market has improved in the past year and in particular the past quarter. If the positive trend continues, then there is scope for an improvement in retail spending.

Queensland has slipped down the rankings to just above Western Australia, and Tasmania. Encouragingly, the lower Australian dollar will support agricultural exports and more importantly the tourism sector in coming months.

Western Australia continues to slip in the performance rankings, having moved from top spot (July 2014) to seventh in two years. Slower population growth and higher unemployment will constrain activity in the housing market

The Tasmanian economy is seeing a modest lift in momentum. The lower currency on three months ago is providing a boost to an array of sectors, especially tourism.

Methodology

Each of the states and territory economies were assessed on the eight key indicators mentioned above.

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 look at 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 of 3.6 per cent is the lowest of all economies. But this jobless rate is 1.1 per cent lower than its ‘normal’ or decade-average rate of 3.7 per cent, ranking it third on this indicator.

Trend measures of the economic indicators were used to assess performance rather than more volatile seasonally adjusted or original estimates.

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945 and a Participant of the ASX Group and Chi-X Australia.