Key Points

• After a year of fairly strong growth in Gross State Product (GSP) across most states in 2022-23, overall growth is expected to be slower in the current year and into 2024-25 with high inflation and rates weighing on households and businesses.
• Consumption growth was flat in most jurisdictions in Q3 and Q4 and dwelling investment was in outright decline in most cases as supply issues lingered and rate rises impacted the flow of new dwelling approvals. However, strong public sector demand has been a key support across the board in 2023 driven by public investment. Business investment has also shown some resilience in the larger states (despite persistently low levels of business confidence in the NAB Business Survey).
• The weakness in demand has come despite very strong population growth of 2½-3% across the states. Notably, a considerably portion of this has related to the strong recovery of international student numbers, particularly in NSW and Victoria, with associated tuition fees and consumption spending counted as exports. Nonetheless, incomes and spending have clearly been squeezed in per capita terms.
• The recovery of education and tourism exports has been a key support to growth in the eastern states as well as the ACT. Elsewhere, resource exports have had a mixed impact with a strong recovery in coal export volumes in Queensland and LNG production coming back online for the NT, while the outlook for iron ore in WA has become more challenging give the slowing in the Chinese property sector.
• The ongoing combination of strong population growth and constrained supply remains a key dynamic in housing markets. Consequently, rental vacancy rates remain very low across the capitals – and are around just 0.5% in Adelaide and Perth – and rents growth generally remains strong. House prices growth has become more varied across the states, but generally remains solid despite the rapid increase in interest rates.
• There are also signs of easing across labour markets as slowing economic activity has seen employment growth running below the pace of population. Nonetheless, the unemployment rate remains low across the board – below 4% in trend terms in NSW, Victoria, WA and the ACT – and wage growth is now running above 4% y/y in every jurisdiction.
• Importantly, we expect inflation to moderate gradually with the RBA to keep the cash rate on hold through most of 2024 before beginning to cut from November. This will likely see household demand remaining subdued until real income growth begins to recover later in the year, supporting demand growth into 2025.
• Offsetting this, we expect some normalisation in the rate of population growth over time, while the tailwind from recovering services exports will also fade. Agricultural production is also expected to decline amidst drier weather. On balance, for most states and territories we see only incremental improvement in GSP growth into 2024-25 before growth returns closer to trend further out.

For further details please see March 2024 State Economic Overview