Australian state comparison – the big two dominating

 

With the mining boom well and truly behind us, Australia’s current two-speed economy favours the big two (New South Wales and Victoria).

Let’s review some key economic indicators across the states to assess current performance.

The broadest measure of activity is growth in state final demand (the total value of goods and services that are sold in a state, excluding net exports and inventories). In the year to December 2016, Western Australia state final demand shrank 7.8% as business investment activity fell away, while Queensland grew only 1.8%. In contrast, New South Wales (4.1%) and Victoria (3.4%) posted very solid gains, highlighting the relative strength of these economies at present.

It’s a stark story in terms of jobs growth. Victoria added over 95,000 jobs in the year to February 2017 (over the previous year), while New South Wales performed strongly also, adding a touch over 60,000 jobs. South Australia, ACT and NT produced only modest gains over the same period, while Tasmania, Queensland and Western Australia went backwards. It should be noted that Victoria recorded much of its growth in the back end of 2016, while New South Wales’ jobs came in the earlier part of year. This has meant the most recent labour force figures skew the growth contribution more favourably towards Victoria at the expense of New South Wales.

Chart: Employment growth by State

economy
Source: ABS cat. 6202.0 – Labour force

Consequently, the relatively stronger states of Victoria and New South Wales are now attracting interstate residents or limiting outflows, as people move from the more difficult employment conditions of Western Australia and South Australia, in particular. Combined with traditionally strong overseas migration, population growth in Victoria (2.1%), New South Wales (1.4%) and Queensland (1.4%) is comfortably ahead of the other states.

Low national wage growth is reflected across all states, with the highest growth in the year to December being recorded in Tasmania (2.4%). South Australia (2.2%) and New South Wales (2.1%) follow, while Western Australia brings up the rear, mustering a weak 1.4% growth.

Over the 12 months to December 2016, inflation remains low at only 1.5% nationally on the headline measure. Sydney saw the fastest growth with prices rising 1.8%, equalled by Canberra, while prices rose by only 0.4% in Perth, and Darwin saw a rare negative result (prices declining by 0.4% over the year), reflecting weak demand.

Retail trade remains positive across all States, with the strongest growth through the year to January being in South Australia (4.5%) followed by Victoria (3.8%), Tasmania (3.5%) and New South Wales (3.2%). Falling consumer confidence and rising job insecurity has burdened retail in Western Australia, recording a modest 1.2% growth over the same period.

New South Wales and Victoria remain the key drivers of national housing activity, with residential building approvals growing 10.1% and 10.0%, respectively in the year to January 2017. By contrast in Western Australia, approvals fell 22.0% over the same period.

This comes as house prices across the country continue to rise, with Sydney and Melbourne driving much of the growth. While this strength has supported a period of rapid residential property construction, it’s also come at a cost. Rising housing unaffordability has seen household debt relative to income rise to 187%, with new buyers in Sydney and Melbourne likely to be the most leveraged.

Economic activity across the states has flipped on its head in recent years, with the big two now well and truly the leaders. But the foundations of this growth are partly built on an over-heated housing market, while the north and west of the country retain good connections with Asian economies which are picking up speed. So, don’t be surprised if we flip again in the next few years.

David Rumbens is a Deloitte Access Economics partner and co-author of our Weekly Economic Briefing.

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