‘Two speed’: CommSec state of the states shows pressures of higher interest rates

Two mining powerhouses are officially Australia’s best performing state economies, with one topping the list for the second time since 2014. 

Western Australia and Queensland have been the country’s best performing economies thanks to mining. Picture: Supplied

Mining powerhouses Western Australia and Queensland have topped Australia’s best performing states as southeastern Australia battles through higher interest rates.

The quarterly report from CommSec ranks each state on eight key indicators including economic growth, retail spending and employment.

WA has held on to the top spot for the second time in a row, ahead of Queensland. Prior to the last two quarters, WA has not topped the list of best performing economies since 2014. 

The latest report, released on Tuesday, shows two contrasting outlooks for the Australian economy.

The mining industry has helped keep Western Australia on top as the country’s economic leader, according the CommSec state of the states report. Picture: Supplied

CommSec chief economist Ryan Felsman told NewsWire Australia the resource heavy states were performing strongly, but the southeastern states were struggling under the higher cost of housing and servicing debt.

“As a whole Western Australia and Queensland stand out, they are benefiting from China demand and stimulus with commodity prices responding to this stimulus,” Mr Felsman said.

“Particularly iron ore, natural gas and coal have really strengthened over the last few months. At the same time those states are benefiting from strong migration with housing finance strength remaining in both states.”

According to the report, WA and Queensland are expected to continue their recent domination of the rankings in early 2025.

Recently the iron ore price ticked back over $US100 a tonne after slipping to as low as $US90 a tonne in September. 

“With (US President Donald) Trump taking government, there are expectations he will impose tariffs on Chinese imports and with the Chinese economy still sluggish from weakness in its property sectors we are expecting more forceful stimulus on the policy front from the government,” Mr Felsman said. 

“This in turn could lead to stronger demand particularly for commodities so those two states in the near term could continue to outperform.” 

Overall WA is topping the list across construction work which is up 12.2 per cent, population growth at 2.8 per cent and dwelling starts which has surged 69.4 per cent.

Surprisingly, WA is in second last place on economic growth – only outperforming the Northern Territory – with it going backwards by 2 per cent in the last quarter. 

On the other side of the country, NSW Victoria and the ACT are feeling the cost of living impacts.

In all three states retail spending is in the negatives as households respond to cost of living pressures. 

The cost-of-living pressures and interest rates are hitting Australians living in NSW, Victoria and the ACT. Picture: NewsWire/ David Crosling

“The interest rate sensitive southeastern states are lagging – much like the broader national economy – with higher interest rates and mortgage costs weighing on NSW, Victoria and the ACT,” Mr Felsman said.

“While the labour market has been resilient and that has supported some consumer spending, we have seen the ACT and NSW in particular be under quite a bit of pressure in terms of household spending.”

Mr Felsman said the southeastern economies could pick up if there were interest rate cuts later in the year. 

“Rate cuts should see a bit of improvement in consumer spending as they combine with recent tax cuts, solid wage growth and a resilient labour market, which could lead to better outcomes for the southeastern states,” he said. 

Commonwealth Bank and ANZ are expecting a rate cut as early as February 18 when the Reserve Bank of Australia first meets in 2025, while others in the market say it could be as late as May 2025. 

The official cash rate has remained unchanged at 4.35 per cent since November 2023 after rising 13 times in a row. The bond market currently pricing in a 58 per cent chance of a rate cut in February. 

The ACT, which is already lagging behind, could slip even further if there is a change of federal government, with the election due by May 17. 

“The ACT fortunes may depend on who wins the federal election. As we’ve seen around the world with the populous type of governments being elected there’s a focus on government spending,” Mr Felsman said. 

“Fiscal discipline seems to be a bit of a mantra of the populace including President Trump and a fiscal focus in New Zealand under the centre-right there.

“So if we see a transition to a Peter Dutton Coalition, then the ACT may be under some pressure as far as government spending and employment are concerned.”

Originally published as ‘Two speed’: CommSec state of the states shows pressures of higher interest rates