Western Australia tops economic league

Western Australia again leads Australia’s “State of the States” composite ranking, with retail spending, relative unemployment, population growth, housing finance and dwelling starts outperforming national averages. The quarterly scoreboard, compiled from eight indicators, places Queensland second and the ACT last. The signal is uneven strength: WA’s overall activity is only about 3.6% above its long-term average, suggesting the expansion is positive but not exuberant, and sensitive to commodity- and migration-driven cycles. For federal settings, the mix argues for patience on policy: domestic demand pockets are firm, but not across the spectrum.

Mechanically, WA’s dominance still traces back to mining-linked income and migration effects. Elevated terms of trade support household cash flows and building activity, while net inflows of people amplify consumption and housing finance. Yet the composition poses two tests. First, housing heat risks prolonging shelter-inflation stickiness even as headline CPI eases, keeping real rates restrictive. Second, dependence on bulk-commodity momentum leaves the cycle exposed to China’s policy cadence and global liquidity tone; if China’s stimulus impulse softens or the DXY firms materially, commodity prices and AUD income can compress. The 2026 path therefore hinges on whether real wages repair faster than housing costs and whether mining-adjacent capex broadens beyond extraction into processing and logistics.

Markets have treated the ranking as confirmation rather than surprise. The S&P/ASX 200 (^AXJO) has been buoyed by a broader global risk bid, while AUDUSD trades in a range set by relative rate expectations and China-linked sentiment. For state finances, a still-healthy royalty base and resilient consumption bolster revenue, but capital-works pipelines will grapple with capacity constraints, costs, and the lagged impact of higher rates on private investment. The upside scenario is a managed rebalancing: housing approvals stabilise at a higher plateau, population flows support services consumption, and mining capex rotates into productivity-enhancing projects. The downside is a synchronised squeeze from sticky shelter inflation, slower China demand, and tighter global financial conditions.

Comparatively, Queensland’s second-place reflects diversified momentum—energy, tourism, and construction—while southern states wrestle with softer retail and tighter labour markets. Nationally, the report’s dispersion cautions against reading the league table as a green light for aggressive easing or fiscal expansion. Instead it underscores the need to target supply bottlenecks (housing delivery, skilled migration matching, grid and port upgrades) to convert cyclical tailwinds into durable capacity.

Track three indicators into mid-2026:

(i) housing finance growth vs new-dwelling completions (a proxy for whether demand outruns supply);

(ii) state job vacancy ratios vs labour-force participation (capacity tightness);

(iii) mining-adjacent capex intentions vs realised starts (transmission from commodity prices to on-shore investment).

Yes, growth moderates but avoids stall, with WA outperformance narrowing as housing normalises and goods disinflation extends. Risk case: weaker China impulse and firmer DXY pressure incomes and capex, pulling WA back toward the pack.