In the face of higher rates and inflation, state and territory economies in Australia have exhibited remarkable resilience despite slower growth in 2023, with various factors supporting activity across the nation, according to NAB’s State Economic Update for Q3 2023.
Household consumption and retail resilience
State Final Demand (SFD) data has revealed that household consumption growth, while modest, remained positive in most jurisdictions during Q2. Retail sales data underscored this resilience, showing sustained consumer spending strength throughout Q3.
Strong population growth, particularly in the eastern states of NSW and Victoria, has played a pivotal role, with both states benefiting from a robust rebound in overseas migration. Queensland also continued to experience positive effects from interstate movements.
Public investment and mixed business conditions
Public demand, fuelled by significant investment programs in states such as NSW, Victoria, and Queensland, as well as the Territories, has been a key support pillar, NAB said.
However, business investment has shown a more mixed picture, with healthy conditions in some states but subdued growth in smaller jurisdictions. The Northern Territory stood out with a notable decline in resources-related activity and disruptions to LNG production affecting its economic landscape.
Tight housing markets and employment trends
Rapid population growth has kept rental markets tight in most capitals, with house prices in larger cities approaching their 2022 peaks, although Hobart, Darwin, and Canberra have experienced more subdued price movements, NAB said.
The labour market, too, remained tight overall, although signs of a slowing pace in employment growth are emerging. While the unemployment rate remained low in trend terms for most states, gradual labour market loosening is anticipated as overall growth eases.
Commodity prices and export challenges
Commodity prices, though slightly lower than their 2022 peaks, remained elevated, supporting incomes in exporting states.
NAB noted that concerns lingered regarding China’s growth impact on iron ore exports and is expecting an anticipated El Niño period to result in decreased crop production, impacting agricultural exports. Services exports, however, have largely recovered to pre-COVID levels in most states.
Outlook and challenges ahead
Looking ahead, NAB is forecasting a subdued growth trajectory into 2024, accompanied by persistent inflation and restrictive interest rates.
While progress on inflation is expected, NAB said the smallest states may face greater challenges due to a slowdown in domestic demand.
Public demand is anticipated to continue to play a crucial role, but constraints on state government budgets pose a potential limitation.
For a comprehensive overview, refer to the State Economic Overview (Q3 2023).
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