Housing construction is helping keep the WA economy in the lead.

Housing construction is helping keep the WA economy in the lead.

Australia has a three-tier economy with Western Australia, the Northern Territory and New South Wales outperforming the rest of the country, according to the quarterly Commsec State of the States report.

The report was released amid warnings from the Melbourne Economic Forum on Monday that Australia faced declining living standards unless it radically boosted its productivity.

In the Commsec report, the states were assessed using a number of key indicators including retail spending, equipment investment, employment, construction work, population growth, housing finance, dwelling starts, wages, inflation and home prices.

South Australia and Tasmania are the national underperformers, with the other states and the ACT in the middle.

Among the top tier, Western Australia ‘‘remains the best-performing economy in the nation, holding its position due to strength in home purchase and construction,’’ according to Commsec.

The state is ranked first for retail trade and housing finance, second for economic growth and construction work, and third for business investment, population growth and dwelling starts.

The Northern Territory is the second strongest economy, leading the way on economic growth, business investment, employment and construction work.

New South Wales remains the third strongest economy, underpinned by solid population growth and home building.

Among the middle tier economies, ‘‘there is little to separate Queensland, Victoria and the ACT’’, according to Commsec.

Queensland the second strongest on business investment but seventh on population growth, Victoria is the second-ranked economy for population growth and housing finance and the ACT has the second strongest economy for employment and dwelling starts.

‘‘There is a sizeable gap in the rankings to South Australia and Tasmania,’’ the report noted, with the two states performing badly on the key indicators.

South Australia is sixth to eighth on the key indicators, although it is fifth on construction work and population growth;

Tasmania is the worst-performing economy in the nation, coming last on four indicators – economic growth, construction work, population growth and dwelling starts.

Each of the key indicators was ranked as a percentage change in the March 2014 quarter on a decade average.

Meanwhile, detailed modelling published on Monday by the Melbourne Economic Forum –  a newly created group of top economists and public policy specialists – has predicted stark outcomes for Australia unless there are further economic reforms.

The Forum said that the end of the resources investment boom and falling terms of trade could mean unemployment will hit 6.6 per cent in just over a year, pushing an extra 250,000 people into joblessness and stripping $1200 from per-capita income by 2020. As well, incomes were likely to fall until at least 2020 as the mining boom receded and export prices fell, sending gross national income per capita down by about 0.3 per cent a year over the next five years.

To prevent this, Australia would need an ABS-measured productivity growth rate of 0.7 per cent per annum just to maintain living standards, and 2 per cent to keep living standards growing at their average for the past decade, said the Forum.

To prevent a rise in unemployment, real average earnings would need to shrink by 0.89 per cent a year, and the dollar would need to fall by an extra 20 per cent – equivalent to around US75¢ – to help the economy make its adjustment to the post-boom era.

Ross Garnaut and Leslie Martin, economics professors at the University of Melbourne, and James Giesecke, director of Victoria University’s Centre for Policy Studies, conducted the modelling.

‘‘Do we have a problem that requires budget adjustment, income restraint and new reform efforts to lift productivity? Or is the Australian ‘she’ll be right’ approach to economic policy in the early 21st century good enough,” the pair write.

The Forum will host its first gathering on Monday to discuss Australia’s macro-economic prospects. It will hear presentations by Professors Garnaut; Treasury’s head of macro-economics, David Gruen; former Liberal leader John Hewson; and former Labor trade minister Craig Emerson. 

- with The Australian Financial Review