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Spending cuts threat to the ACT economy

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Spending cuts in the federal budget pose the biggest risk to the ACT economy, which is suffering from sluggish retail sales, the CommSec quarterly State of the States report says.

Except for Western Australia, all states and territories were struggling for momentum, with a common weakness being the housing sector, CommSec chief economist Craig James said.

The thriving mining state is in front on economic growth, construction work, employment, retail trade and equipment investment, according to the report, which analyses eight key indicators.

ACT Treasurer Andrew Barr said the CommSec report affirmed the territory's economy was ranked second again, equal with Victoria, and was ''travelling well''.

The ACT was on top in home building, although the report found dwelling construction starts had suffered the biggest decline in 5½ years in the year to the December quarter. Mr James said: ''The ACT continues to benefit from above-average population growth.

''So while the housing market is softening, it has fundamental supports in terms of population growth and relatively low unemployment.


''The ACT is most at risk from spending cuts in the budget in May.'' Business leaders have warned of the risks to the territory's economy from squeezing federal agencies' budgets, which means less spending on goods and services provided by the private sector.

There also are concerns of big job cuts in the bureaucracy as the government returns the budget to surplus in 2012-13. Prime Minister Julia Gillard declared last week that it was ''time to get back in the black'', despite business leaders saying it was a political decision, not an economic necessity.

In the ACT, business leaders argue concerns about federal cuts in jobs and spending are weighing on business confidence and causing consumers to tighten spending. About 45 per cent of the workforce in the ACT is in the public sector.

Mr James said the ACT was at the ''bottom of the leaderboard'' in retail spending, compared to its decade average, and along with NSW had the weakest annual trend growth rates on retail trade.

Even though the ACT had the lowest unemployment rate in Australia of 3.6 per cent, it was above the decade average of 3.4 per cent and the gap in percentage terms was higher than ''all but two economies, affecting activity in the retail sector,'' Mr James said.

The ACT had the slowest wages growth, at 2.9 per cent, in the December quarter but was negative when adjusted for inflation of 3.6 per cent in the territory.