Westpac economists are flagging a more uneven housing and economic landscape as higher interest rates and a renewed energy shock cool growth through 2026 and 2027.
Westpac now expects national GDP growth to slow sharply to around 1% in 2026, with unemployment moving towards 5% and core inflation still elevated.
Senior economists Pat Bustamante and Ryan Wells (pictured left to right) say “state performances are set to diverge again” as differences in industry mix, population growth, and sensitivity to interest rates re‑emerge.
The latest debate over whether the Reserve Bank will lift the cash rate from 4.1% at its 4–5 May meeting adds to that uncertainty, with all four major banks reportedly expecting another hike despite softer March CPI. In its latest Weekly, Westpac also reiterates its view that RBA will lift the cash rate to 4.35% in May and then to a peak of 4.85% after two further hikes, reflecting concern over stubbornly above‑target inflation.
Queensland and Western Australia are expected to lead the pack. Elevated global energy prices are driving export and income windfalls, helping to cushion households from tighter monetary policy and supporting dwelling prices via wealth effects. In both states, consumption growth is forecast to hold near or above 2% over the next few years, with employment gains outpacing the national average as population growth remains firm and investment pipelines stay full.
South Australia is also seen as relatively well positioned, with a substantial pipeline of public infrastructure and defence‑related projects supporting jobs, incomes, and housing demand.
Recent figures from the PropTrack Home Price Index reinforce the emerging multi‑speed market, showing national home values slipped 0.1% in April as Sydney and Melbourne fell, while Brisbane, Adelaide, and Perth still posted monthly gains.
New South Wales and Victoria, by contrast, are forecast to underperform as higher interest rates and cost‑of‑living pressures feed directly into household spending and housing activity. Westpac notes that “consumption-led states set to slow sharply”, with per capita consumption in both markets having moved largely sideways since 2019.
Victoria is expected to be hit hardest. On Westpac’s numbers, consumption per capita there declines by around 3.5% over the five years to FY2028, described as “one of the largest and longest‑lasting contractions on record” and leaving spending per person below pre‑COVID levels. Softer dwelling construction and potential post‑election fiscal tightening add to the downside.
Tasmania is projected to lag overall as weak population growth drags on housing construction and consumer demand, while employment growth remains subdued.
Westpac expects conditions to remain challenging until inflation moderates back towards target and interest rates can eventually be eased, likely closer to 2028 than 2026. Until then, growth is set to remain strongest in mining‑exposed states and SA, while NSW, Victoria and Tasmania face a slower path marked by weaker consumption, softer housing activity, and subdued labour‑market gains.
For the full Westpac report, click here.
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