Big states pull away from the pack: ANZ Stateometer

GUEST OBSERVER

The ANZ Stateometer, released today, shows NSW and Victoria continue to improve solidly, with NSW extending its lead. 

The other states remain firmly below trend and so Q2 y/y GDP growth, when released tomorrow, is expected to have remained soft. 

The mining states appear to have arrested the slowing in activity for now, while SA has fallen further behind. 

Tasmania is at risk of losing steam, while the ACT was the biggest improver. 

NSW AND VICTORIA LEAD THE REBALANCING OF THE ECONOMY 

The inaugural ANZ Stateometer, a new indicator of economic activity for Australia’s states and territories, highlights the outperformance of NSW, but also a pick-up in economic momentum in Victoria. 

The upturn in activity for NSW and Victoria (which together account for more than half of Australia’s GDP) has been an important part of the rebalancing in activity as resources investment turned down. Given their strong inter-linkages with the rest of the country, NSW and Victoria’s performances bode well for an ongoing, albeit slow, recovery. 

But the below-trend performance of the bottom five states and territories affirms our expectation that tomorrow’s national accounts will show GDP growth remained soft in the June quarter. 

Click to enlarge

THE ANZ Stateometer READINGS:

Economic activity in NSW and Victoria was growing faster than long-run average rates over the year to the June quarter and accelerating.

 

Apart from Tasmania, which has recently fluctuated around its trend rate, growth in the remaining jurisdictions was firmly below average.

 

Queensland’s growth was below trend and momentum slowed slightly in the year to the June quarter.

 

WA and SA are furthest from average growth rates and growth slowed in SA in Q2 in year-ended terms. We see the slight quarterly pick-up in WA’s growth momentum as a momentary stabilisation in economic activity before further weakness occurs. We hold the same view for the NT.

 

The ACT played catch-up in Q2 with a strong increase in economic momentum, but it remains well below its trend rate of growth.

 

NSW EXTENDING ITS LEAD ON THE REST OF THE COUNTRY

Residential investment, labour market conditions, business conditions, and pockets of commercial property have been relatively strong in both NSW and Victoria, but the former has outperformed according to the ANZ Stateometer.

Tasmania and Queensland share some of these strong states’ characteristics; they have solid housing and private consumption, and are also benefiting from the depreciating Australian dollar. We expect their below-trend, lower momentum position on the ANZ Stateometer will change as these drivers lead to recovery rather than further deterioration.

Economic activity in WA and SA are firmly on a downward trend. For WA it is the ongoing falls in resources investment, while SA is dealing with a broader malaise in its industrial sector. All other states and territories have shown some pick-up in economic activity over the first half of the year.

The NT has also seen a substantial contraction in economic activity from a decline in business investment, and growth remains well below its trend rate. The recent pick- up in its reading on the ANZ Stateometer has been narrowly based, so we do not expect it to be long-lived.

The ANZ Stateometer also shows the ACT economy has been growing well below its trend rate since late 2011, largely due to Commonwealth budget consolidation. The index deteriorated precipitously over 2014 off the back of a consolidating labour market and its impact on consumption. The index has improved sharply recently. 

 

Click to enlarge

 

Kirk Zammit is economist, ANZ and Cherelle Murphy is co-head of Australian Economics, ANZ. They can be contacted here.