Australia’s Two-Speed Economy: Winners and Losers Revealed
Australia’s two-speed economy is becoming increasingly evident, with mining powerhouses such as Western Australia (WA) and Queensland surging ahead while southeastern regions face mounting challenges. According to the latest CommSec State of the States Report, WA and Queensland are capitalising on booming demand for natural resources, leaving New South Wales (NSW), Victoria, and the Australian Capital Territory (ACT) struggling under high interest rates and cost-of-living pressures.
For the second consecutive quarter, WA has ranked as Australia’s best-performing state economy, a position it has not consistently held since 2014. Queensland follows closely in second place, further highlighting the divide in Australia’s two-speed economy between resource-rich states and their southeastern counterparts.
Mining Powers WA’s Economic Dominance
The driving force behind WA’s success is its rich resource base. According to CommSec chief economist Ryan Felsman, WA and Queensland are reaping the rewards of strong demand from China and rising commodity prices.
“As a whole, Western Australia and Queensland stand out. They are benefiting from China’s demand and stimulus, with commodity prices responding accordingly,” Felsman explained. Key commodities such as iron ore, natural gas, and coal have seen notable price surges in recent months.
WA, in particular, has excelled in several economic indicators. The state leads in construction work, which is up 12.2%, has experienced population growth of 2.8%, and boasts a staggering 69.4% increase in dwelling starts. However, despite these successes, it’s notable that WA ranks second-last in economic growth, showing a 2% decline in the last quarter.
Felsman suggests that WA’s dominance may continue for some time. “We’re expecting further stimulus from China, particularly with its sluggish property sector, which could increase demand for commodities. This could help WA and Queensland maintain their strong economic position in the near term,” he said.
Southeast Struggles with Rate-Hike Pressure
Meanwhile, the picture is much less rosy in NSW, Victoria, and the ACT. These states are feeling the brunt of elevated interest rates, mortgage costs, and household budget pressures. Retail spending in each of these southeastern states remains in the negatives.
“The interest rate-sensitive southeastern states are lagging, much like the broader national economy,” Felsman added. “Higher rates and mounting mortgage costs are weighing heavily on NSW, Victoria, and the ACT. While the labour market has been resilient, which has helped some consumer spending, households in these states remain under considerable financial strain.”
The southeastern regions could catch a much-needed break with potential interest rate cuts on the horizon. Both Commonwealth Bank and ANZ predict the Reserve Bank of Australia (RBA) could introduce rate cuts as early as February 2025, while other analysts anticipate they may come later in the year.
“Rate cuts should see improvement in consumer spending as they combine with recent tax cuts, solid wage growth, and a resilient labour market,” Felsman said, hinting that an eventual easing of monetary policy could revitalise the fragile economies of these states.
The ACT Braces for Further Challenges
The ACT is currently one of Australia’s worst-performing regions and could potentially face even steeper challenges in 2025. Felsman warns that the upcoming federal election, due by May 17, could introduce additional uncertainty depending on the outcome.
“The ACT’s fortunes may depend on the federal government’s direction,” Felsman noted. “A transition to a Peter Dutton-led Coalition government, for example, could bring fiscal discipline and reduced government spending, which would affect employment and economic growth in the region.”
Diverging Fortunes Set to Continue
Queensland also remains a standout performer, benefiting from strong demand for resources and an influx of migrants. Robust housing finance activity has bolstered the state’s economic position. Like WA, Queensland is expected to maintain its strong rankings in the coming quarters, given the positive outlook on commodity exports and sustained government and overseas investments.
Notably, iron ore prices recently climbed back above $US100 a tonne, following a period of decline. This resurgence, coupled with anticipated Chinese stimulus, is expected to support the resource-driven economies further.
WA’s and Queensland’s continued success contrast sharply with the mounting pressures on southeastern states. This divide, often referred to as Australia’s two-speed economy, showcases the challenges of navigating a national economy with such starkly different dynamics across regions.
Australia’s Economy: Boom in the West, Strain in the South
The two-speed economy is likely here to stay, at least in the short term. Resource-heavy states like WA and Queensland are set to benefit further as global demand for commodities remains robust. Meanwhile, southeastern regions face a challenging year, with economic recovery largely dependent on interest rate cuts, tax relief, and consumer confidence rebounds.
With the Australian economy pulling in two distinct directions, businesses and policymakers alike will need to monitor regional trends closely. On one side, rising global commodity prices could continue to buoy mining powerhouses, while on the other, fiscal and monetary policies are vital for easing pressures on southeastern states.
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