ANZ Stateometer shows Queensland on the road to recovery: Cherelle Murphy
GUEST OBSERVER
Queensland has shown the greatest improvement over the September quarter, with the annual pace of growth rising nearer to its trend rate.
A dominant feature of the ANZ Stateometer continues to be the strength of New South Wales activity. The largest state is trumping all other states and territories, with the NSW index at a record level.The index for Victoria edged higher over the September quarter, signalling a steady rise in demand. The outlook in Tasmania remains positive with the annual pace of economic activity at its trend rate.
The ANZ Stateometer shows that economic activity in the aforementioned states has performed well over 2015; a reflection of solid growth in services sector activity. This is also being reflected in labour force outcomes.
The Northern Territory also continues to perform better, supported by strong construction activity in the resource sector.
But in Western Australian economic activity remains below trend and growth in South Australia and the Australian Capital Territory has slipped further.
The September quarter results provide a timely indication of the direction of state final demand in each state and territory. The official data for the September quarter will be released in around two weeks’ time.
IS NSW ECONOMIC ACTIVITY AT ITS PEAK?
Monthly economic data continue to be strongly positive for New South Wales. The NSW index, which measures annual growth in economic activity, increased to its highest level over the September quarter.
The positive tone in the monthly data is broad-based with indicators for household consumption, business activity and the labour market all positive. The continuing strength in the index is a strong indication of solid demand in NSW in the September quarter, and should be reflected in the national accounts to be released in early December (Figure 2).
The upswing in residential construction and the sharp depreciation in the currency are supporting economic activity in NSW, particularly Sydney. While we expect an extended period of above trend growth, indications are that NSW may be approaching the top of the business cycle (Figure 3). How the NSW economy adjusts to a cooling housing market and eventual slow-down in residential construction will be key to future growth momentum.
ECONOMIC REBALANCING BROADENS TO QUEENSLAND
The rebalancing of the national economy continues with a solid pick-up in the annual pace of economic activity in Queensland (Figures 1 and 4). As the third largest economy in Australia, signs of economic momentum are encouraging, and lend further support to signs that the non-mining sectors are picking up.
The ANZ Stateometer is an alternative measure of the performance of the state and territory economies, and can be used in conjunction with more traditional measures. The latter have the tendency to be strongly influenced by temporary shocks in parts of the economy and this is particularly the case for Queensland (Figure 5), where State Final Demand and the Queensland index have diverged.
The decline in mining investment in Queensland has led to a sharp contraction in state final demand. While significant, this is perhaps not representative of activity in the broader economy, which has picked up noticeably over the year. The state’s monthly data flow picked up across household, business and labour force indicators.
SERVICES LIFTING ECONOMIC ACTIVITY
Of key importance to the rebalancing of the national economy is the role of the services sectors. These industries, typically labour intensive, have helped to lift the trend employment-to-population ratio in NSW, Victoria, Tasmania, and Queensland. These states are also the ones that are showing the strongest economic performance on the ANZ Stateometer.
Residential construction has and will continue to be important to supporting employment (in construction and several services industries). Commercial construction, outside of mining, should also play a greater role for some states, with the outlook for non-residential construction looking better in some sectors such as tourism and government-backed infrastructure.
Kirk Zammit is economist, ANZ and Cherelle Murphy is co-head of Australian Economics, ANZ. They can be contacted here.
