Overseas migrants and a buoyant housing market have saved Canberra's economy from plunging into recession as the Australian Public Service contracts.
The territory economy has defied the lowest wages growth of any state or territory and unemployment soaring at 44 per cent above the long-term trend, and climbed to equal third place in CommSec's quarterly State of the States report.
The report has ranked the ACT behind only economic giants NSW and Victoria and equal with the Northern Territory, with Canberra's local economy dragging itself up from sixth position in last year's State of the States rankings.
CommSec found improved business investment, housing finance, dwelling starts and population growth had allowed the territory economy to defy the hit to employment and wages from the shrinking Commonwealth public service and a general construction sector which has come off the boil.
The ACT government says low interest rates and accelerated land release programs have kept the residential property market ticking over and low inflation has offset the worst effects of wage growth at a low 1.6 per cent.
Meantime, population growth is strong with the exodus out of town seen at the height of the public service cuts in 2014 and early 2015 "slowed to a trickle" and strong numbers of overseas migrants choosing to call Canberra home.
However, CommSec chief economist Craig James says policy makers should not be complacent.
"The ACT is a mixture of strength and weakness, so while in a relative sense the Northern Territory and the ACT are outperforming other states, it is by no means one-speed," Mr James said.
"There are positives and negatives there.
"So while the territory looks good at the moment ... you do have unemployment which is higher than the longer term average, which should lead to a degree of caution."
But Mr James was upbeat about the knock-on effects of a healthy new housing sector.
"Dwelling starts were the big change and the ACT government has got the ability to be able to control the number of homes that are approved for construction, and clearly they are a fair determinant of how the economy performs," the economist said.
"Clearly population growth has been rising, that has created a demand for new home sites and dwelling starts have risen to record highs in trend terms.
"That augurs well for the future because if you are building new homes, then you've got demand for builders, demand for construction materials. And when people move into those homes, you're going to have demand for televisions, washing machines, fridges and things like that."
Chief Minister Andrew Barr said the local economy was in far better shape to withstand upheavals in the Commonwealth public service than it was in 1996, the last time the bureaucracy was radically downsized.
"The territory economy is more diverse and resilient in this period than it was in the mid-1990s, the last time the ACT experienced an economic shock as large as what happened under the Abbott government," Mr Barr said on Tuesday.
"What's been happening in the Commonwealth has had an impact on unemployment and on wages growth ... but the rest of the economy has been remarkably resilient."
The Chief Minister cited increased numbers of international arrivals in the capital as one important factor in the economy's strong performance.
"There are more international arrivals than departures, so that's a positive. But the one thing that has been dragging it [population growth]down is more people leaving to live elsewhere in Australia than coming from elsewhere in Australia," Mr Barr said.
"But at peak-Abbott, when he was sacking people, we were losing a lot of people interstate and that has slowed to a trickle."