According to the Commonwealth Bank, since the beginning of 2016 NSW has been Australia’s top performing economy, slightly ahead of Victoria and maintaining a healthy lead over other States and Territories. The April 2016 State of the States report found that NSW holds top ranking on five indicators: population growth, retail trade, dwelling starts, and unemployment.
NSW does not hold top position on all economic indicators: it remains fourth ranked on construction work done and second ranked on economic growth, both led by the Northern Territory. Nevertheless, the State of the States report concluded that NSW retains a solid grip on the top ranking of economic performance.
One reason for this ongoing economic strength, as noted by St George Bank last year, is the Australian economy’s ongoing transition away from mining to the non-resources sectors:
While NSW may have felt like it was standing on the sidelines in the mining investment boom, the ongoing transition in Australian economic growth to other sectors is a boon for NSW. We expect solid economic growth in coming years.
As discussed in past Economic Updates, the housing market continues to play a pivotal role in the NSW economy’s recent resurgence, driving dwelling investment, generating wealth and catalysing household consumption growth. However, as reported by the Australian Financial Review, house price growth is now at its slowest pace in 31 months, with no capital city recording an annual growth rate at 10% or more over the past year.
RBA Governor Glenn Stevens has argued that the slowdown indicates that the mid-2015 strengthening of bank lending standards for housing has worked to reduce the risk of a major housing market downturn. Nevertheless, as noted by Merrill Lynch, the slowdown may result in “a period of weaker price growth or outright modest declines [that] is likely to become entrenched over coming years”. Whether this slowdown risks instigating a household debt crisis in the long term remains the topic of debate by many observers.
Based on the latest quarterly movements, the strengthened and weakened areas of the NSW economy are summarised in the table on the following page. It is clear that NSW is performing relatively well in key areas, although business investment remains weak.