WA has strongest economy in country, but NSW and Queensland tipped to gain on interest rate stability

Consumer conservatism and uncertainty over the carbon tax and mining taxes will weigh on sentiment until the end of the year, CommSec says, with its quarterly report showing Western Australia has the strongest economy in the country, but New South Wales and Queensland could stage a comeback if rates remain on hold.

The quarterly CommSec State of the States report says a pause on interest rate rises could provide a fillip to the property markets in both New South Wales and Queensland, but the high Australian dollar continues to trouble tourism operators.

“Looking ahead, the NSW economy should benefit in coming months from relatively high population growth and firm housing lending,” the June quarter report says.

“And Queensland should benefit from rebuilding activity after the floods and cyclones in early 2011.”

“An extended period of interest rate stability could provide the momentum that NSW and Queensland economies both need – injecting interest in the housing sector.”

CommSec chief economist Craig James says if the Reserve Bank went through with Westpac’s prediction for an imminent rate cut, this would lead to housing sectors across the country to pick up.

But James does not expect the RBA to do so, tipping the central bank will lift rates in November as the economy improves in the second half.

“The Reserve Bank would be of the view that a hike would lead to higher prices and potentially rents, which would increase inflation,” James says.

The CommSec report found that Western Australia knocked the Australian Capital Territory off its perch as Australia’s top economic performer.

While the ACT economy is being propelled by above-average population growth, which is driving construction levels, CommSec says a rise in the territory’s jobless rate raises questions about whether its strong economic performance can be maintained.

The report, which looks at eight key economic indicators to measure the performances of Australia’s states and territories, says the top three economies across Australia were WA, ACT and Victoria. Rounding out the pack were South Australia, Tasmania, Northern Territory and Tasmania together, New South Wales and then Queensland.

In order to measure how the economy was tracking compared with normal, CommSec used averages over the decade. The eight indicators were:

• Economic growth
• Retail spending
• Equipment investment
• Unemployment
• Construction work done
• Population growth
• Housing finance
• Dwelling commencements

While CommSec expects WA to continue to report solid growth on the back of Chinese demand for its resources, it warns that residents of the state are not sharing the benefits equally.

“Provided China continues to grow then the Western Australian economy will continue to thrive,” the report says.

“But just as the broader Australian economy is multi-speed, so is the situation in Western Australia. Mining areas are thriving but weaker housing activity is creating challenges in Perth and non-mining regional towns.”

On house prices, the broker expects them to track sideways rather than fall for the remainder of 2011.

“Wages are expected to outpace prices over the remainder of 2011,” CommSec says.

“Housing markets are generally undersupplied with stock.”

Here are the strengths and weakness, state by state: