Below trend growth to continue
Population rebounding but growth slowdown looms
The key themes playing across the states include very tight labour markets, softer house prices but stronger rents in and surging population growth, while the ongoing impacts of higher rates and inflation are expected to weigh on growth going forward after all states saw a strong economic performance in 2022.
That said, growth generally slowed across the states in Q4 as the rebound from earlier lockdowns continued to fade. Nonetheless, SFD is now well above pre-COVID levels in every state and territory.
Labour markets remain tight across the states, with unemployment just below 4% over the past three months in most jurisdictions, and even lower at around 3.2% in NSW. This is a clear contrast to pre-pandemic where unemployment was relatively low in NSW and Vic but a step higher in the smaller states. Despite the strong growth in employment, job vacancies also remain elevated everywhere despite easing over the past two quarters.
The rapid rebound in population growth across the states, driven by a strong return of net migration, has likely filled some of the open vacancies but is having significant implications in each housing market. Some states, such as Qld and SA, are also continuing to benefit from strong net interstate migration which is further supporting their population growth. Tas is yet to see a material rebound.
The housing market continues to adjust to the impact of higher rates – with relatively large adjustments in Sydney, Melbourne, Hobart and Brisbane to date. Adelaide and Perth have only seen marginal declines from their peaks but had not seen as large gains during the pandemic. With rates nearing their peak, relativities between supply and demand across the states will become increasingly important – and are already being reflected in very tight rental markets.
Commodity prices are expected to remain elevated, particularly for energy. While we don’t expect a large rise in mining investment in the current environment, higher prices will provide a support in resource dependent states like WA and Qld.
The favourable conditions for agriculture seen over recent years are likely to ease somewhat in 2023, particularly for the soft bulk commodities in NSW, Vic and WA with dryer conditions going forward – especially if an El Nino event eventuates. Nonetheless, bumper crops and elevated global prices see the sector at a strong starting point.
The ongoing recovery of services trade, particularly international student arrivals and tourism, will continue to support growth across the states, especially Vic, NSW and Qld, with arrivals still well below pre-COVID levels.
On balance, the nation-wide impact of high inflation and higher interest rates on households will likely drive slower growth across the board over the coming year, swamping some of the state-specific growth drivers. Longer term, trade competitiveness, business investment and managing the housing investment cycle and population growth will remain critical factors shaping states’ growth.
For further details please see State Economic Overview (March 2023)
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