The New South Wales economy rose 3.7 per cent in FY23, this is much stronger than its long-term average growth rate of 2.4 per cent and in line with NSW Treasury’s forecast for FY23. The state experienced widespread growth across various industries. The hospitality industry and the transport and logistics industry contributed to growth the most as both domestic and international tourism bounced back. Rental, hiring and real estate services was the only industry detracting from growth due to both reduced turnover and a fall in house prices throughout the year. Going forward, the NSW Treasury expects growth to slow to 1.25 per cent this financial year before picking up to 2.25 per cent by FY27.
Victoria’s economy increased by 2.6 per cent in FY23, in line with its long-term average growth rate but slightly weaker than what was forecast by Victoria’s Treasury at 2.8 per cent. Again, the hospitality industry and the transport and logistics industry were the key contributors as the economy bounced back from the pandemic. Construction activity increased, and more so than on the national level, driven by public sector projects rather than residential construction. Victoria Treasury projects growth to slow further to 1.5 per cent this financial year, rising above its long run average to 2.8 per cent by FY26.
Queensland recorded an increase in GSP by 2.3 per cent in FY23, slightly below its long-term average of 2.4 per cent, but stronger than the 2.0 per cent forecast by Queensland Treasury earlier this year. Agricultural production increased to record levels due to favourable weather conditions, contributing 0.3 percentage points to growth. This, alongside tourism, drove activity in the transport and logistics industry. The mining industry was the main detractor from growth, however this was driven by low volumes of coal production as prices, and thus profits in the industry, continued to outperform, leading to a record operating surplus for the state. Queensland Treasury expects growth of between 2.8 per cent and 3.0 per cent over the forward estimates.
Western Australia’s economy grew 3.5 per cent in FY23, continuing a solid run of growth over the last few years. However, the result surprised to the downside compared to WA Treasury’s forecast of 4.3 per cent, and is slightly below the long-term growth rate of 3.7 per cent (which includes record-high growth during the mining boom). All but one industry continued to expand. Activity in the retail trade industry fell 0.8 per cent as households spent less on discretionary goods due to cost-of-living pressures and increased mortgage repayments. The mining industry was the key contributor mainly due to strong iron ore production, but also lithium. WA Treasury expects growth to slow to 1.5 per cent by FY27.
South Australia’s economy experienced broad-based growth of 3.8 per cent, much stronger than its long-term average growth rate of 1.3 per cent and above SA Treasury’s forecast of 3.5 per cent. All industries experienced growth, with the key contributors being the mining industry, especially copper, as well as the agriculture industry. SA Treasury expects GSP growth to slow to 1.0 per cent this year but to pick up thereafter and reach 2.0 per cent by FY26.
Tasmania’s economy increased 1.1 per cent in FY23, below its long-run average growth rate of 1.7 per cent and short of Tasmania Treasury’s forecast of 1.5 per cent. Strong domestic tourism and a partial recovery in international tourism were the key drivers for a jump in activity in the transport and logistics industry, rising 26 per cent through the year to June. Agriculture was the key detractor from growth after two years of strong performance. Tasmania Treasury expects the growth rate to pick up from here reaching 2.5 per cent by FY26.
The Northern Territory was the only economy which experienced a fall in GSP of 5.3 per cent. This was anticipated by NT Treasury which forecast a 5.1 per cent contraction. This was entirely driven by mining activity which fell 17 per cent. Oil and gas extraction saw weaker production volumes due to a range of disruptions at key facilities. The NT Treasury expects GSP to increase by 2.7 per cent this year and to recover further thereafter.
In contrast to this, the Australian Capital Territory saw the strongest annual increase of all states and territories at 4.3 per cent in FY23, up from 2.8 per cent the previous year. This was much stronger than the long-run average of 3.5 per cent and ACT Treasury’s forecast of 3.8 per cent. The result was mainly driven by growth in the public sector. ACT Treasury expects growth to slow to 2.3 per cent this financial year before picking up again and reaching 3.5 per cent by FY27.
The national economy is likely to experience a further growth slowdown as cost-of-living pressures and increased mortgage repayments continue to weigh on activity. All states and territories but Queensland and the Northern Territory are expected to see a slowdown in growth in FY24 compared to FY23. Inflation is taking longer to moderate than earlier expected and upside risks to inflation persist. The Reserve Bank’s business liaison program indicates that firms expect wages growth to moderate over the coming year, which the Reserve Bank is relying on to reach its inflation target. While the labour market is still tight, conditions have eased and are expected to ease further.
National Accounts data for the September quarter (to be released on 6 December), the Commonwealth Mid-Year Economic and Fiscal Outlook (MYEFO, out mid-December) and state mid-year budget updates will provide more insights into the nature of the slowdown before the end of the year.
See also our recently published report on the states’ budget positions and why fiscal sustainability is important for the economy.
