What’s really going on with the economy in our states?
There’s lots of mixed messages about the health of our economy, but ANZ have recently shed some light on the fragmented nature of our various state economies.
They produce an ANZ Stateometer which shows the New South Wales economy is in an expansionary phase and Victoria’s economic growth above trend, but momentum has slowed a little.
Here’s what their report said:
Compared with NSW, the housing-led recovery in Victoria is at a more mature phase and the state doesn’t have such a large investment pipeline to hold momentum.
We are becoming more convinced that Queensland is moving into the recovery phase of the business cycle.
This should become more apparent as the mining investment drag on the broader economy dissipates and the lower currency supports activity.
Combined, NSW, Victoria, and Queensland represent more than 70% of national output.
The ANZ Stateometer suggests that growth in the Tasmanian economy remains a little below average and is slowing.
This has been driven by a loss of momentum in building and construction indicators, though these can be volatile.
Clearly the lower currency is supporting the Tasmanian economy.
South Australian economic activity continued to slow over the year to July, while economic activity in Western Australia remained more or less unchanged at a below-trend pace.
The services sector is providing some support for WA, in line with national trends.
The lower AUD is assisting education, tourism and agriculture and diverting spending back towards domestic business.
However, the key challenge for WA will be to navigate the next 18 months with investment winding down on the huge Gorgon and Wheatstone LNG projects and the Roy Hill iron ore mine.
Increasing divergence in economic activity across the states
The multi-speeds of economic growth in Australia are widening (Figure 2).
On one end of the ANZ Stateometer, economic activity in NSW accelerated sharply in July and is now 1.4 standard deviations above zero, a strong indication that economic activity is above its own long-run average.
On the other end, economic activity in SA continued to slow and is now 1.2 standard deviations below zero.
Figure 3, a simple dispersion index of the state and territory indices in Figure 2, shows clearly the increasing divergence in the annualised pace of economic activity across Australia.
The dispersion index highlights the varying positions each state is at on the business cycle – the higher the number the more uneven the economic performance is across the country.
The out performance of NSW relative to the other jurisdictions has driven the recent rise in the dispersion index.
Figure 4 shows how the NSW index rose above ‘zero’, moving from contraction to expansion in less than a year.
Over the past three months economic activity has accelerated firmly above its trend rate of annual growth and banished fears earlier in the year of the economy stalling when economic activity fluctuated around its inflexion (an indication of a turning point in the economy).
Economic activity in Victoria has maintained its annual pace, however, it is not showing the same momentum as NSW.
Queensland has edged higher, with the positive monthly data flow slightly offsetting the negatives.
The data in July were slightly negative for Tasmania, which slipped a little further below trend.
The mining states remain firmly below their respective trend pace of economic activity, however momentum has changed little (either negatively or positively).
It is worth noting that the mining states have higher trend rates of growth than the other states and territories due to their very strong mining investment-led expansion of the past decade.