Box B: Regional Economic Performance
Over the past few years, economic activity has been strongest in the resource-rich states of
Western Australia and Queensland, while in other states it has eased noticeably (Graph B1).
Two main factors have contributed to this disparity. First, resource-rich states have most directly
benefited from the sharp increase in world commodity prices in recent years. Second, the earlier
run-up in house prices resulted in
Graph B1
reduced housing affordability in
State
Final Demand
the larger states; in the case of New
Year-ended percentage change
South Wales, this has contributed
%
%
to an outflow of migrants that has
10
10
Resource-rich states*
slowed the pace of economic output
8
8
in that state.
All the states have benefited
from the recent commodity price
increases
through
multiplier
effects across the whole economy,
dividend distributions from resource
companies to domestic shareholders,
and other channels.1 However,
the stimulus to activity has been
strongest in the resource-rich states
of Western Australia and Queensland
where mining accounts for a larger
share of output. Activity in the more
manufacturing-oriented states such
as Victoria and South Australia has
been more subdued, in part because
the large increases in commodity
prices have been associated with a
period where the exchange rate has
been above its post-float average.
During the past year, the faster
growth in the resource-rich states has
owed largely to strength in business
investment (Graph B2), reflecting
strong growth in mining-related
6
6
4
4
2
2
Rest of Australia
0
0
-2
-2
-4
1997
1999
2001
2003
-4
2005
* Queensland and Western Australia
Source: ABS
Graph B2
Business Investment
2001 = 100
Index
Index
200
200
Resource-rich states*
180
180
160
160
140
140
Rest of Australia
120
120
100
100
80
2001
2002
2003
2004
2005
80
* Queensland and Western Australia
Source: ABS
1 See ‘Commodity Prices and the Terms of Trade’, Reserve Bank of Australia Bulletin, April 2005, pp 1–7 for a more detailed
discussion of the channels through which an increase in the terms of trade stimulates activity.
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Graph B3
House Prices and Migration
New South Wales
Ratio
’000
2.0
40
Relative house prices*
(LHS)
1.8
30
l
1.6
20
1.4
10
Net population flow **
(RHS, from NSW to rest of Australia)
1.2
1993
1996
1999
2002
2005
0
* Ratio of Sydney house prices to other capital cities, APM composition-adjusted
measure
** 2005 observation based on first three quarters of 2005
Sources: ABS; APM; RBA
Graph B4
Dwelling Investment
June 2000 = 100
Index
Index
Other states
110
110
100
100
90
90
WA
80
80
NSW
70
70
60
60
50
50
40
1997
1999
2001
Source: ABS
2003
2005
40
engineering construction. In addition,
domestic demand in the resource-rich
states has been boosted by buoyant
consumption growth, which has
been weaker in other states.
Differing trends in house prices
and in dwelling investment have also
accentuated the recent divergences
across states. During the house price
boom, prices grew most in Sydney,
with prices at one point almost 90 per
cent higher than the average level
in other capitals. This contributed
to population outflows to regions
where housing was relatively more
affordable and economic activity was
stronger (Graph B3). The resulting
slowdown in population growth in
New South Wales reduced growth
in consumption and contributed
to a fall in dwelling investment in
that state. In contrast, dwelling
investment has continued to expand
in Western Australia and has been
broadly stable in the rest of the
country (Graph B4). However, the
population outflow from New South
Wales now appears to have slowed,
possibly reflecting the fact that house
price relativities between Sydney and
the other capitals have moved back
towards pre-boom levels.
Consistent with these developments, Western Australia and Queensland have experienced
strong growth in employment, while employment in the largest states has expanded more
modestly. The sustained strength in employment growth in the resource-rich states has seen
their unemployment rates fall substantially. However, in part reflecting the equilibrating role of
migration between states, there has been broad similarity in movements in unemployment rates
in all the states over the course of the current economic expansion.
Finally, despite the differences in the economic circumstances faced by the states, the extent
of the recent divergences in the growth performance of states is not unusually large. Much
32
R E S E R V E
B A N K
O F
A U S T R A L I A
larger divergences – as measured
by dispersion in the growth rate of
annual gross state product (GSP) –
have occurred in earlier periods, as
states entered and exited national
recessions at different times, and
during the terms of trade shocks of
the 1970s (Graph B5).2 R
Graph B5
Dispersion in Growth between States*
% pts
% pts
5
5
4
4
3
3
2
2
1
1
0
0
74/75
80/81
86/87
92/93
98/99
04/05
* Standard deviation of annual GSP growth, weighted by state shares of
national output
Sources: ABS; Harris and Harris (1992)
2 Data for the 1980s are from Harris CP and D Harris (1992), ‘Interstate differences in economic growth rates in Australia,
1953–54 to 1990–91’, Economic Analysis and Policy, 22(2), pp 129–148.
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