CommSec’s latest State of the States report has declared Victoria the nation’s best-performing state economy, thanks to strong building activity and population growth.
It is the first time since the inception of the report nine years ago that Victoria, historically ranked number two, has toppled New South Wales.
The ranks are based on eight key economic indicators: dwelling commencements, unemployment, population growth, economic growth, equipment investment, housing finance, retail spending and construction work.
Victoria outranked the other states and territories on three indicators, including economic growth, which is up by 26.5 per cent from the decade average to $402.5 billion in the March 2018 quarter.
There were 20,356 dwelling commencements in Victoria over the same quarter, representing the sharpest increase of 42.5 per cent to the decade average.
The growth in the value of construction work was also highest in Victoria, hitting $12.6 billion in the March quarter, an increase of 28.6 per cent to the decade average.
“The claim to fame for the Victorian economy is the strength in terms of population, and that has been driving really strong growth in terms of the housing sector,” CommSec chief economist Craig James said.
By comparison, NSW saw the number of dwelling starts increase by 42.2 per cent over the decade average to 16,635 in the March quarter, while economic growth ($520.1 billion) in the state was up by 25.7 per cent from the decade average.
The value of construction work in NSW was $15.2 billion, an increase of 27.9 per cent from the decade average.
Mr James said that there is currently not much separating the Victorian and NSW economies.
While NSW was the second best-performing state in Australia, it led in the categories of retail spending and unemployment, according to the CommSec report.
Over the March quarter, retail spending values in NSW reached $25.1 billion, which is 17 per cent higher than the decade average, while the unemployment rate was 4.8 per cent in June 2018, a decrease of 10.3 per cent from the decade average.
“[There’s] a really strong job market in NSW, but we have got signs of maturation in the housing market, with fewer dwellings being commenced and likely [to be] completed over the next 12 months,” the chief economist said.
The Australian Capital Territory maintained its third spot, though it ranked first on housing finance commitments and equipment spending in the January–March quarter, which were 1,087 and $145 million, respectively. Compared to decade averages, these figures represent increases of 19.8 per cent and 27.2 per cent.
Tasmania ranked fourth, topping growth on four of the eight economic indicators. CommSec’s data showed annual population growth has been the strongest in Tasmania in eight years, recorded at 0.947 of a percentage point in the December 2017 quarter.
According to the CommSec report, this figure is 65 per cent above the decade average, and is driving strength in home building in Tasmania.
The island state was one of the three regions (alongside Queensland and South Australia) to see the number of dwelling commencements (711) increase, climbing by 11.2 per cent to the decade average.
Resting at the bottom of the ranks were Queensland (fifth), South Australia (sixth), the Northern Territory (seventh) and Western Australia (eighth).
Queensland overtook South Australia’s position in the ranks thanks to an improvement in building activity, with 10,249 dwelling starts recorded in the March quarter. The figure is up by 11.2 per cent from the decade average.
South Australia was impacted by a decline in the value of equipment investments, which totalled $603 million in the March quarter, 17.4 per cent below the decade average.
The Northern Territory and Western Australia were grouped together based on both “facing challenges with the transition of resource projects moving from the production to the export phase”.
“They are continuing to feel the effects of the mining downturn… Certainly, there’s further development in that’s going to be occurring in the Northern Territory and Western Australia to be able to move up the rankings,” Mr James said.
Both regions have weak job markets, with their unemployment rates sitting at 6.2 per cent as of June, which is 1.2 per cent above the decade average of 5 per cent. Queensland’s rate was only 10 basis points lower.
Mr James said that if there are any changes in the rankings over the next three to six months, it is likely to be the mining states of Queensland, the Northern Territory and Western Australia.
“We are seeing an improvement in demand for construction and mining workers in the mining regions and that could create fresh momentum in terms of the economy,” the chief economist said.
Mr James added that the drop in demand for homes in NSW and Victoria could continue.