The latest annual issue of the gross state product figures by the Australian Bureau of Statistics showed that for the first time in a decade, Western Australia no longer is the fastest growing state economy. While WA’s economy last year was still growing strongly, despite employment in the state shrinking, this year the performance of the economy is more reflective of the weak state of jobs in the state.
While Australia’s GDP figures are released every three months (the next are due on 7 December), the measure of each state’s economy only comes out once a year. Gross state product (effectively the GDP of each state) takes into account not just the consumption and investment in each state, but also includes exports from and imports into each state.
As has been clear from the GDP figures, exports was the big driver of Australia’s economy in 2015-16 (and will likely continue to be so). But the GSP figures show that while Western Australia remains the state most dependent on strong export growth, the sharp drop in mining investment is now such that even the export boom cannot keep WA’s economy powering ahead of the rest of the nation.
Since 2005-06 Western Australia’s economy has been the fastest growing across the nation.
Not any longer.
In 2015-16, for the first time since 1990-91, New South Wales had the fastest growing economy in Australia. At 3.5% growth, it is not just the best performing state, its growth is the best NSW has achieved since 1999-2000.
With just 1.9% growth, Western Australia finds itself back in the pack – well down on the 3.6% growth it achieved in 2014-15, let alone the peak of 9.1% of 2011-12:
I have excluded Northern Territory from the graphs because at just 1% of the national’s economy, and a mining area, it can be subject to very wild swings due to relatively small changes in investment – thus for example in 2012-13 it had growth of 15%, which dwarfs that ever achieved by the rest of the country, and as result rather ruins the scale of the graphs, so here is the graph of NT’s GSP and GSP per capita growth. For what it is worth, it’s growth in 2015-16 was less than the national GDP growth this year.
On a per capita basis, the lead by NSW is even greater. Its 2% per capita growth is 0.6 percentage points greater than that of the next best performing state, Victoria, while WA and Queensland brought up the rear with just 0.7% growth in 2015-16:
And while there has definitely been the sense that Australia solid GDP growth is not translating into equally solid employment growth, the GSP performance compared with employment growth in each state suggests some good alignment.
NSW and Victoria are the two states with GSP growth faster than Australia’s GDP growth, and they are also the only two states with employment growth in 2015-16 above the national average.
Mostly this can be explained by stronger growth of final demand (essentially consumption and investment) – which is a big driver of jobs, as opposed to exports which does not necessarily translate into extra work. Only Tasmania is a bit of an outlier on this, with above average growth of demand (mainly due to government and household consumption) but also the worst employment growth:
The driver of each state’s growth varies rather wildly across the nation.
New South Wales’ economy benefitted from not having too many things dragging down its growth. Its biggest driver was actually government consumption, closely followed by private dwelling construction.
Somewhat surprisingly, the contribution of dwelling construction to NSW’s economic growth was not the biggest in the nation. Victoria and Queensland both saw dwelling construction as a bigger driver of their state’s economies – fuelled by the surge in apartment construction in those two states.
Western Australia and Queensland were also not the only two states to have growth come via strong exports. South Australia and Tasmania both saw strong performing export growth. For Tasmania a lot of the boost in exports came via an 80% increase in exports to China – mostly in the form of processed metals:
The change in WA’s economy from an investment superstar to export boomer has taken just three years.
In 2012-13, private capital expenditure in WA totalled $92.4bn, but since then it has declined by $25.3bn to now just $67.1bn. In the same period, net exports in the state rose $31bn from $49.7bn to a whopping $80.7bn in 2015-16:
A good way to see just how sharp the fall in private investment has been in the west is to compare private capital formation in WA and NSW.
In 2011-12 and 2012-13, WA, despite having an economy roughly half the size of NSW’s actually had more private investment:
The drop in performance of WA, and the improvement of NSW has also seen a change in the makeup of Australia’s economy.
Off the back of the strongest growth in the nation, in 2013-14 WA accounted for 16.9% of Australia’s economy – up from just 10.5% at the start of the century. But in 2015-16, its share has fallen to 14.5%, while NSW’s rose to 32.5% - the biggest slice of Australia economy it has had since 2006-07:
The GDP figures out in two weeks will given an updated snapshot of how Australia’s economy has been travelling. Often those figures can obscure the performance across the states as they don’t count the exports from each state. But as the GSP figures have shown, even with strong export growth the key to a healthy economy for people looking for work is investment, and right now NSW and Victoria lead the way both in that, and also in jobs.
