- Recent economic data suggests Australian economic growth is picking up
- In contrast to previous years, the improvement is evenly spread across the states and territories
- Stronger jobs and business data is helping to offset weakness in the housing market
Australian economic growth has largely been powered by the performance of individual states and territories in the years since the global financial crisis.
Initially, it was the mining regions that did much of the heavy lifting, helping to offset weakness elsewhere in the country. That subsequently changed a few years ago with non-mining regions taking up the slack, helping to offset weakness stemming from lower commodity prices and the unwinding mining capital expenditure boom.
The net result has meant that Australian economic growth has been OK without being great, at least compared to what was seen in periods in the past.
However, that may all be about to change if this chart is anything to go by:
It’s ANZ Bank’s “Stateometer”, a visual indicator that uses trends across 37 individual economic indicators to measure the performance of Australia’s states and territories over a particular quarter.
Think of it as a report card on how each state and territory economy is performing compared to its historic average.
Here’s how to read the chart:
- Any state and territory in the top half of the chart is deemed to be growing at an annual pace above its historic trend, while those in the bottom half are growing at below trend.
- On the bottom axis, anything on the left suggests that economic activity is slowing, while anything on the right indicates it’s accelerating.
- The bold symbols indicate where each state and territory currently sits, with the lighter symbol where it was in the prior quarter.
Based off the data received in the December quarter last year, the news was pretty good.
Not only does it point to Australian economic growth accelerating to an above-trend pace of over 2.75%, in contrast to what’s been seen in recently, the strength was broad-based.
The vast majority of states and territories, according to the Stateometer, are now growing faster than usual and accelerating, an outcome that fits with the expectations from the Reserve Bank of Australia (RBA) which is forecasting GDP to grow above 3% this year and next.
“Common factors included strong global conditions, public sector spending, accommodative monetary policy and the lower Australian dollar,” said Cherelle Murphy and Jack Chambers, economists at ANZ.
“Only the small and volatile Northern Territory, due to its unique circumstances, decelerated to a below-trend pace.
“Commodity price rises helped speed up the mining states, while softer conditions in the residential sector tamed growth in New South Wales.”
Murphy and Chambers said the convergence between the states reflected stronger labour market conditions, making the largest contribution to the improvement seen during the quarter.
Business readings were also above trend in all states and territories except the Northern Territory.
Despite the strength in labour market conditions and business indicators, Murphy and Chambers said that household activity was below average in all regions except Victoria and the ACT.
“The common factor is the drag on spending from persistently weak wage growth. High household debt is also affecting spending for some,” they said.
“Housing was a negative in all states, except Victoria and Tasmania.”
That underlines why the RBA is watching developments in the housing and labour markets closely right now given household spending accounts for just less than 60% of total Australian economic growth.
Australia’s Q4 2017 GDP report will be released on Wednesday, March 7.