Each state or territory within the Australian economy is nuanced and contributes to the overall national Economy in different ways. As we navigate client portfolios through 2024, the economic tapestry of Australia reveals a complex interplay of growth, challenges, and opportunities across its diverse regions. Key Issues we are watching include;
Housing Market Divergence
The housing market shows significant variation across states. Western Australia, Queensland, and South Australia are experiencing robust growth, while New South Wales faces challenges. Perth leads with a staggering 24.7% annual house price growth, followed by Brisbane at 16.0% and Adelaide at 15.5%. In contrast, Sydney's growth is more subdued at 5.6%, while Melbourne barely registers at 0.2%.
Rental Market Shifts
The rental market is showing signs of cooling in major cities. Sydney and Brisbane have seen their first declines in advertised rents since 2020, while regional areas are gaining momentum. This shift could have implications for property investors and may influence housing affordability in different regions.
Office Market Dynamics
Brisbane stands out with improving office vacancy rates, down 2.2 percentage points to 9.5%. Sydney also shows resilience with a 0.6 percentage point decrease to 11.6%. However, Melbourne's office market appears subdued, with vacancy rates rising to 18.0%, the highest among major CBD markets.
Labour Market Variations
While the national unemployment rate has risen to 4.2%, there are notable differences between states. Victoria has seen the most significant loosening, with unemployment reaching 4.5% in trend terms. This variability in labour market conditions could influence wage growth and consumer spending patterns across states.
Retail Spending Patterns
Western Australia leads in retail spending growth at 3.9% year-on-year, followed by Tasmania at 3.5% and Queensland at 3.0%. New South Wales lags behind with only 1.3% growth, indicating potential challenges in consumer confidence or disposable income in the state.
Inflation Disparities
Inflation rates vary significantly across states. Western Australia saw the highest quarterly rise at 2.1%, driven by a sharp increase in electricity prices. Perth and Adelaide have experienced the highest annual inflation at 4.6% and 4.5% respectively, while Hobart and Darwin show more subdued inflation outcomes.
Wage Growth Differences
Tasmania leads in wage growth at 5.1% annually, followed by Queensland at 4.6%. Victoria lags significantly behind at just 3.3%, potentially impacting consumer spending power in the state.
Industry Composition Impacts
The varying industry compositions of each state are influencing their economic trajectories. Western Australia's strong performance is underpinned by its dominant mining sector, while Victoria's challenges may be partly attributed to its reliance on sectors more affected by recent economic headwinds.
Investment Trends
Investor activity in Queensland and Western Australia has been particularly strong, with annual growth in investor lending at 34.5% and 56.7% respectively. This trend is likely contributing to the robust home price growth in these states.
State-by-State Economic Snapshot
To illustrate the economic diversity across Australian states, let's look at a key indicator: the contributions to annual Gross State Product (GSP) growth for 2022/23.
This chart clearly shows the varying drivers of growth across states. Western Australia stands out with strong private demand and net exports, while Victoria faces challenges with negative contributions from both public and private demand.
Investment Implications and Opportunities
Diversification Across States: Given the varying economic performances, investors should consider diversifying their portfolios across different states to mitigate risks and capitalize on growth opportunities.
Property Market Opportunities: The strong growth in Perth, Brisbane, and Adelaide's housing markets suggests potential opportunities for property investors, while caution may be warranted in Sydney and Melbourne.
Sector-Specific Investments: States with strong specializations in certain industries may offer targeted investment opportunities. For instance, Western Australia's dominant mining sector or Queensland's growing transport and health sectors could be areas of focus.
Income-Focused Strategies: With wage growth varying significantly across states, income-focused investment strategies may need to be tailored to local economic conditions.
Infrastructure and Public Spending: Keep an eye on states with higher levels of public investment, as this could create opportunities in related sectors and boost economic growth.
In conclusion, the Australian economy in 2024 presents a mosaic of opportunities and challenges that vary significantly from state to state. As wealth managers and investors, it's crucial to look beyond national averages and consider the unique economic landscapes of each state. By understanding these regional differences, we can construct more resilient and opportunistic investment portfolios that are well-positioned to navigate the diverse Australian economic terrain.
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