Growth engines

Western Australia and the ACT now share the title of the best performing economy in Australia. Overall CommSec couldn’t split Western Australia and the ACT after consideration of eight key indicators.

Three months ago, Tasmania was judged the best performing economy in Australia, from South Australia and Western Australia. And while Tasmania has slipped to third and South Australia is down to fourth, overall there is little to separate six of the eight state/territory economies.

NSW continues to bring up the rear of the state/territory rankings, behind Northern Territory.

Western Australia and the ACT are on top

Tasmania has lost its position as the best performing economy in the nation, but only just. However the ACT and Western Australia have crept up the leader-board over the past three months and now share the top spot. Western Australia is the fastest growing economy, buoyed by mining-related construction and investment. And solid growth in residential construction and property sales has propelled the ACT to the top of the economic rankings.

Tasmania’s economy has continued to benefit from above-average population growth. Also the US financial crisis had only a modest impact on the state, especially compared with NSW and Victoria.

South Australia slipped from second to fourth in the economic rankings but there was little to separate the top six state/territory economies. South Australia was generally around the middle of the pack on each of the indicators.

Queensland takes fifth spot with investment and retail spending the strongest areas. Victoria has crept up the leader-board from seventh to sixth on the back of stronger economic growth and improved growth in residential property. And Victoria was one of the biggest improvers over the last three months, behind the ACT.

Northern Territory is seventh with NSW in eight spot with both economies underperforming on construction activity, especially in the residential sector.

Looking ahead, Western Australia appears to have the best prospects of all the states and territories, underpinned by solid investment spending in mining and engineering sectors. NSW has potential to lift from the bottom of the economic leader-board if faster population growth can be translated to increased construction, investment and overall economic growth.

How were the rankings decided?

Each of the states and territories were assessed on eight key indicators: economic growth, retail spending, business investment, construction work done, population growth, housing finance, dwelling commencements and unemployment.

The economies weren’t ranked on annual growth rates; rather current activity levels were compared with decade averages. Clearly some states such as Queensland and Western Australia consistently have faster 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, Tasmania’s trend unemployment rate stands at 5.4%. While the ACT has lower unemployment, Tasmania’s decade average unemployment rate stands at 6.8%. Compared with other states and territories, Tasmania’s job market is performing far better, with unemployment well below its ‘normal’ or decade average rate.

Similarly dwelling starts. In the September quarter Tasmania’s dwelling starts were only 2.5% higher than a year ago. But the actual level of starts was 26% above the decade average – far better than most of the other states or territories on the same criteria.

Clearly there will always be some subjectivity associated with the rankings. Some people may believe that a certain indicator deserves a higher weight – perhaps considering that unemployment is more important than housing finance. And some will debate the worth of indicators used for assessment. But the fact that eight indicators are used means economic performance is broadly assessed.

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

Economic growth

Ideally gross state product would be used to assess broad economic growth. But the data isn’t available quarterly.