State Economic Summary and Outlook

Strategic National Economic Outlook

The foundations of a genuine cyclical upswing in economic activity are now in place. Despite this, uncertainty remains elevated due to ongoing geopolitical tensions and significant demographic and technological shifts that are transforming society and the economy. Traditional economic forecasting models are struggling to account for these changes, resulting in a lack of confidence among forecasters and decision makers. This secular uncertainty is adding to the normal cyclical uncertainty about what is next for our economy.

A major threat to Australia’s economy is the recent poor productivity performance, which has led to a decline in real incomes nationwide. The unprecedented 5% fall in national productivity complicates efforts to assess the economic outlook. Persistently weak productivity growth and shrinking real incomes could create financial challenges for households and business unprepared for a sustained downturn in real incomes. Signs already emerging of problems as business cost pressures remain high and more Australian families report difficulty making ends meet. Ultimately weak productivity is an inflation issue, particularly if we see stronger domestic demand ahead.

Inflation continues to represent the most significant risk to the economic outlook. While few economists or policymakers are concerned about a resurgence of inflation in 2026 or 2027, the risks are noteworthy. Should inflation re-emerge, it could prematurely end the RBA’s rate cutting cycle or potentially force a renewed tightening cycle. The weakest element of the RBA’s economic projections is the assumptions for a return to productivity growth and further easing in wage growth despite strong labour demand and low unemployment.

Productivity growth was already sluggish in the decade preceding the pandemic, averaging about 1% per year compared to 2% in the 1990s and 2000s. In the past three years, however, productivity has declined by roughly 5%, undermining both business profitability and real wage growth. We anticipate some improvement in productivity, forecasting growth of around 0.5% in FY26, which reflects stronger output relative to employment growth.

Despite the Government’s recent Economic Reform Roundtable aimed at invigorating a new productivity agenda, there is little chance of meaningful structural improvement in the near term. Policymakers and economic leaders remain divided on the necessary reforms to boost business investment, enhance labour market flexibility, or curb the dominant role of government in national job creation.

New South Wales Economic Summary

The New South Wales economy has been at the centre of the national economic cycle over the past three years, leading the slowdown in private sector spending and now set to play a key role in the private sector recovery we expect to see in .

Domestic demand in NSW slowed to a crawl in 2024 as household incomes were squeezed by inflation, higher interest rates and a rising income tax burden. State economic growth was one of the weakest of all the states largely because a change of government in 2023 saw fiscal restraint. The new ALP Treasurer Daniel Mookey has slowed recurrent spending even as the infrastructure boom continues across the state. This is a contrast with Victoria, which has continued to grow public spending despite a more problematic government financial situation.

NSW is critical to the prospects of a national economic recovery in FY26 given it is the biggest state accounting for about 30% of the national economy. There are promising signs of renewed consumer confidence and business investment is holding up better than other states. Government spending is expected to be a little stronger over the next two years. The foundations of stronger economic growth are in place with encouraging data on consumer spending and business confidence highlighting a strong bounce in activity since the federal election in May.

NSW government needs to maintain its strong focus on boosting housing supply and other critical infrastructure, while restoring stability to government finances.

NSW can be a national, even international leader in quantum computing and AI – the Government needs to focus on the infrastructure requirements such as energy supply and digital infrastructure that will drive growth in service sector innovation and productivity.

Regional NSW can be a growth leader for the state and industry with the right infrastructure programs. The Hunter region is already one of the fastest growing regions in Australia (along with Geelong and Sunshine Coast). The Government needs to look beyond the coastal fringe to drive agriculture, manufacturing and transport systems in central NSW.

Victorian Economic Summary

Victoria is undergoing a period of steady yet measured economic growth. This expansion is largely underpinned by strong population increases driven by overseas migration. Despite these gains, the state faces ongoing challenges in the labour market, private investment, and discretionary consumer spending. There are initial indications of stabilisation in both job vacancies and house prices, hinting at the potential for a continued, albeit gradual, recovery. However, compared to other Australian states, Victoria remains behind in several critical economic indicators as it moves into FY2026.

The state’s economic momentum is currently being maintained by robust growth in both population and employment, which in turn supports consumption. Government expenditure, both in the form of general services and investment projects, continues to be a significant driver of economic activity. In contrast, business investment has softened, impacted by rising property taxes over recent years that have dampened investor sentiment locally, nationally, and internationally.

Melbourne has participated in the national recovery in national dwelling prices, following a period of weak growth attributed to increased property taxes. Notably, about 48% of the Victorian state government’s revenue is derived from property taxation—higher than Queensland (37%) and other states (42%). For the past two decades, Melbourne consistently held the position of having the second-highest house prices after Sydney. However, increased tax burdens have seen Melbourne slip to the fifth position, with Perth, Brisbane, and Adelaide surpassing it. Recent positive trends in the property market may indicate that the impact of these tax changes is now fully absorbed, potentially paving the way for further improvement.

Housing supply is progressing at a reasonable rate, supported by the state government’s move to centralise approval processes, traditionally managed by local councils. However, it remains to be seen whether this will translate into a notable increase in construction and completions, especially as ongoing major infrastructure projects continue to absorb much of the available construction capacity.

Another area of uncertainty is state finances, which have worsened significantly over the past decade. This fiscal deterioration may place constraints on future government investment. A critical question for Victoria is whether the private sector can compensate for a reduction in government activity, given the state government’s historically dominant role in the economy. The coming two years will be pivotal in determining this transition.

Population trends remain generally favourable, largely due to overseas migration. Nevertheless, interstate migration continues to show a net outflow, with more Victorians leaving the state than arriving from other parts of Australia. Additionally, natural population increases are declining, signalling a significant shift in Victoria’s demographic structure in the years ahead. The state’s increasing reliance on first-generation migrants presents both opportunities and challenges, and whether Victoria can reestablish a private sector-led economy remains to be seen.

Queensland Economic Summary

Queensland’s economy is showing signs of a pick-up in activity driven by a robust consumer, strong employment and population growth, and significant pipeline of construction projects in both the residential and commercial sectors. Despite some concerns about capacity constraints on further economic expansion, the long-term outlook for the Queensland economy remains positive.

The newly elected Liberal National Party (LNP) government has delivered its first budget and affirmed it commitment to supporting Queensland’s growth potential by committing to an extensive program of infrastructure investment. Existing projects in the hospital and transport sector remain a priority, as is a substantial investment in new facilities for the 2032 Olympic games, which will be held at venues across the state.

The new LNP government committed to $116bn of infrastructure investment over the next four years (to 2028/29) in its first Budget that was handed down in June 2025. Key areas of focus for the Queensland governments capital expenditure plans are: Hospital Rescue Plan, Transport infrastructure to keep the the economy growing, Delivering on our commitment to the Brisbane 2032 Olympic and Paralympic Games, and Delivery of Queensland’s Housing Investment Pipeline.

Underlying these long-term investments from the government, is a desire to work with business to support private sector investment in industry. Central is the government’s plan to drive housing construction and new dwelling supply to help attract workers from around Australia as well as overseas. The new government will reprioritise the government spending programs, focusing on public sector restraint and efficiency to help fund long-term investment that enhances productivity and economic growth

Queensland consumer spending continues to be outpaced national growth, with discretionary consumption growing 5.8% annually, supported by strong labour demand and rising household wealth from property gains. Consumer sentiment remains cautious but much improved compared to the low levels registered during the cost-of-living crisis of 2023 and 2024..  

The state’s population grew 1.9% in 2024, well above the national average, driven by strong overseas and interstate migration. However, a declining natural increase poses long-term demographic challenges that may moderate future growth depending on the ability to attract workers from other parts of Australia and overseas. With the government focus on housing supply, Queensland is well positioned to continue to outperform the national economy well into the future.  

Queensland has a large pipeline of residential ($17 billion) and non-residential ($16 billion) projects, with dwelling approvals rising sharply. Labor shortages in construction, indicated by job ads 88% above 2019 levels, risk slowing project delivery and increasing wage pressures. As major projects in Victoria and New South Wales are completed, there is the opportunity to shift construction capacity to Queensland from the southern states. Queensland has also been a beneficiary of the weak New Zealand economy, with strong inflows of Kiwis in recent years. 

Employment growth slowed to 2.2% in the year to June 2025 but remains strong compared to the Queensland economy prior to the pandemic or compared to other states in 2025. Job vacancies are high, with unemployment around 4%, reflecting ongoing tight labour conditions that risks putting upward pressure on labour costs.  

Private sector wages increased 3.6% over the year to June 2025, the highest of any Australia state and the highest in the pre-pandemic era since 2012. This is supporting household incomes but is an ongoing challenge for business and other private sector employers. Improved business conditions and profitability in June 2025are expected to continue alongside wage pressures, especially in construction. Queensland highlights that strong domestic spending could quickly become inflationary in FY2026. 

Brisbane and regional Queensland housing prices rose 8.3% annually but growth slowed in early 2025 to align more with national trends. Prices are about double 2019 levels, driven by strong population growth and investor demand. Investor mortgages doubled since 2019, outpacing owner-occupier lending. However, rental demand and price growth have softened due to slower population growth and high entry prices, potentially shifting investor interest to other markets. 

Queensland’s new government, the states strong growth potential and the ability to attract workers will ensure that the state is at the forefront of Australia’s economic recovery over the year ahead. Indeed, the government’s focus on infrastructure investment and the build up to the 2032 Olympic Games should ensure Queensland remains the growth engine of the Australian economy over the decade ahead.

Queensland’s economy is experiencing robust growth driven by strong consumer spending, employment, population growth, and a significant construction pipeline. The newly elected government is prioritizing infrastructure investment, including preparations for the 2032 Olympic Games, to sustain long-term economic expansion. Despite some capacity constraints and labour shortages, Queensland is positioned to lead Australia’s economic recovery in the coming years.

Western Australian Economic Summary

Western Australia enters FY26 as one of the nation’s economic growth engines, with strong population inflows, a tight labour market, resilient consumers, and a still-buoyant housing market. Household spending—particularly discretionary—continues to outpace all other states, supported by relatively affordable housing, solid wage growth, and high consumer confidence.

The labour market remains exceptionally tight relative to the east coast, with employment growth above the national average, job advertisements still well above pre-COVID levels, and private sector wages around 3.5%, second only to Queensland at 3.6%. Population growth has eased from post-pandemic highs but remains stronger than pre-COVID trends, bolstered by record net interstate migration and robust overseas arrivals.

The housing market, much like Queensland’s, delivered outsized price gains in FY25 before moderating in early FY26, as softer migration and new supply eased conditions. Rate cuts and rising real incomes are however expected to support ongoing growth. Together, these dynamics position WA to sustain above-average economic performance into FY26, even as national conditions soften.

WA strategic challenges remain the same as they have been for generations; how to diversify the industrial base for less reliance on the mining sector. The strong economic performance of the last five years highlights progress is being made with non-mining business investment growing, government investment in social and economic infrastructure supporting a dynamic economy, attractive to workers from interstate and overseas.

WA is still not as diversified as the big east coast states, more work on economic diversification needs to be done over the decade ahead. WA is still one of Australia’s two growth states along with Queensland, but it is still less diversified than the ‘sunshine state’. A new growth focused government will drive further expansion ahead of the 2032 Olympics. The WA government must prioritise economic infrastructure and industrial development, particularly within the quantum computing and AI space. WA geographic isolation dictates a clear independent technology strategy is required. The good news is the state’s relatively strong energy supply, a key element in the supercomputing revolution.

We are optimistic on WAs economic future as strong income flows from resources exports underpin the funding of new economic development. WA is exposed to global uncertainties through commodity exports, and this will continue to be a source of broader economic volatility. The resource sector, commodity prices and the $A have navigated the geopolitical and trade development of 2025 well thus far. Iron ore prices have remained near US$100 a tonne, with potential Chinese infrastructure programs supporting prices early in FY26, a clearly positive development for the WA economy.

South Australia Economic Summary

South Australia’s economic performance since the pandemic has been transformative. Strong growth in employment and investment has been sustained and despite the cyclical slowdown of 2023 and 2024, the economy remains on a high growth dynamic trajectory led by private and government investment. This is the best SA economy we have seen in decades.

Strong political leadership is an important element of the South Australian economic story. A popular ALP state government has not lost sight of the importance of business leadership in developing a modern and growing economy. They must continue to prioritise core economic and social infrastructure to facilitate private sector growth.

Success brings it own challenges and SA economic turnaround of the last 5 years has been accompanied by a booming residential property market. Prices have rapidly caught up with other major cities, reducing SA housing affordability advantage. This was an important part of favourable population dynamics as SA and Adelaide was able to retain and attract workers from overseas and interstate. Housing supply must remain a priority for the SA leaders, both government and business if they want to maintain favourable population dynamics and ensure workforce growth.

A national economic recovery will be a real test for the SA economy. A genuine recovery in NSW and Victoria will have both positive and negative implications for SA. While stronger national growth will spillover to SA, it could make labour shortages a more pressing issue for local businesses and investment plans. As a small regional economy, the government must play a central role in guiding the states economic expansion. Any missteps will be felt acutely across the private sector with labour force dynamics, energy supply and broader infrastructure provision the key risks. SA needs an economic vision and buys-in across the community to build on what has been an incredible half decade of economic progress.

Tasmania’s Economic Summary

Tasmania faces continued political uncertainty after a no-confidence vote in parliament earlier this year. Although there was no change in leadership following a close election, the state parliament remains deadlocked across a range of ideologies and political views. As is stands there is still no strong mandate for political leadership in Tasmania. The state’s economic growth has depended heavily on government spending, highlighting the need for clear strategies to attract investment and population inflow amid negative demographic trends.

Tasmania has Australia’s tightest labour market even though it has one of the weakest rates of growth in output and employment. Employment growth of only 0.6% to June 2025 is well below the national average of 2%. The unemployment rate remains low at 3.8%, indicating most job vacancies are unfillable by the pool of unemployed people in the state.  

Retail sales declined by 0.9% in the year to June 2025, reflecting ongoing cost-of-living pressures and weak per-capita consumption growth, which lags behind other states. Consumer confidence, though rebounding, remains below pre-pandemic levels. 

Tasmania’s aggregate household consumption growth trails the national average by 3%, driven by weak population growth and lower discretionary spending, with non-discretionary expenses rising due to inflation in essential goods and services. 

Business conditions are challenging but optimistic despite tough economic conditions including tight labour markets and rising costs. Tasmania’s businesses report high business confidence and improving conditions, which could support future investment. Business investment is still in decline, mainly from reduced spending on buildings and structures.

Population growth remains the biggest challenge. Tasmania’s population grew only 0.3% in 2024, far below the national average, due to declines in interstate migration and natural population growth, with the latter nearing zero due to an aging demographic. This reliance on volatile migration sources poses ongoing risks reinforcing the need for an economic strategy that attracts both investment and people. 

Overseas migration currently offsets losses. Overseas migration is the sole positive contributor to population inflows but is projected to slow over the next two years, threatening future economic growth, unless interstate inflows or workers can be boosted.

Housing market moderates amid weak demand. After rapid growth in 2021, Hobart’s property prices rose only 2.3% to June 2025, below the national average, with regional markets flat but still significantly above pre-pandemic levels. Investor and owner-occupier mortgage activity remain below pre-pandemic levels due to weak population growth.