Population growth has helped make NSW and Victoria Australia's strongest economies

Photo: Michael Willson/AFL Media/Getty Images

New South Wales remains the top performing economy in Australia, edging out Victoria and the ACT in Commsec’s latest State of the States report.

To begin, here’s how Australia’s eight states and territories ranked in the past quarter.

Source: Commsec

In order to determine those rankings, Commsec assesses each state and territory on eight key economic indicators: economic growth, retail spending, business investment, unemployment, construction work done, population growth, housing finance and dwelling commencements.

“Just as the Reserve Bank uses long-term averages to determine the level of ‘normal’ interest rates, we have done the same with key economic indicators,” says Commsec. “For each state and territory, latest readings for the key indicators were compared with decade averages — that is, against the ‘normal’ performance.”

Essentially, how recent data for each Australian state and territory compares to its average over the past decade.

And NSW, Australia’s “premier” state, lived up to that reputation again in the last quarter, ranking top for retail trade and dwelling starts. In five of the remaining six indicators the state also ranked second nationwide.

Victoria replaced the ACT as Australia’s second-strongest performing state or territory, thanks largely to booming population growth. It also ranked second on two indicators and in third spot on another two indicators, said Commsec.

The ACT, now at third spot in the rankings, was marked down due to a “recent softening of the jobs market in recent months”, while Tasmania retained fourth spot for a second quarter due to strong population growth and a recent reduction in the state’s unemployment rate.

Helping to explain the strength in those states and territories in the latest report card, Commsec said that they all logged above average population growth over the past year.

“Population growth is clearly an important driver of the broader economy, especially retail spending and housing demand,” said Commsec.

In Victoria, the population grew close to 20% above its decade average last year. NSW’s population grew nearly 10% above its decade average.

Queensland, South Australia and the Northern Territory took at fifth, sixth and seventh spots respectively while Western Australia, despite some recent improvements, remained the weakest performing state or territory across the country.

“The economic performance of Western Australia continues to reflect the ending of the mining construction boom,” said Commsec.

Western Australia, compared to other states and territories, often struggles in the State of the States report due to the high base effect in many data series from the twin mining infrastructure booms that occurred either side of the global financial crisis in 2008/09.

That previous strength, and the subsequent weakness that has followed, largely explains why the state underperforms in this report.

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