At around half-a-trillion dollars, New South Wales is Australia’s largest state economy, accounting for around a third of the nation’s economic output and home to nearly a third of all Australians.
The size of the New South Wales economy is measured by Gross State Product, which grew by 3.5 per cent in 2015-16, well above long-run average growth of 2.5 per cent per annum. This strong result was driven by inward migration, low interest rates, a lower Australian dollar and the large state infrastructure program.
The NSW population, which currently stands at 7.7 million people, has grown at an average of 1.1 per cent over the last 30-years. However it has grown more rapidly over the last couple of years. This higher growth has been driven by the winding down of the mining boom, as the strong local labour market has attracted workers from other states and a larger share of overseas migrants.
New South Wales has a diversified, service driven economy with a relatively lower exposure to commodity prices compared to the mining states of Western Australia and Queensland. Over the past two decades, the services share of the state economy has gradually lifted to account for three quarters of economic activity and around 90 per cent of employment.
New South Wales has a comparative strength in the provision of business services which, in aggregate, has grown to account for nearly a third of Gross State Product. This includes industries such as financial services, professional, scientific and technical services, property services, information media and telecommunications. The construction, manufacturing, health, education and utilities sectors also account for large shares of economic activity.
The state’s four million strong labour force is employed across this diverse range of industries, the largest employers being the health, retail trade and professional, scientific and technical services sectors. Together these sectors account for a third of all employment. The size of the state’s labour force depends on the proportion of people employed or seeking employment - the workforce participation rate. The NSW participation rate hit a record high 64.6 per cent in 2015 but has since come off this peak and is projected to trend downward reflecting a gradual ageing of the population (see NSW Intergenerational Report 2016)
New South Wales has a diverse export base of manufactured goods, natural resources and services. Major merchandise exports include coal, copper, beef and aluminium. The primary export destinations for goods are Japan, China and the Republic of Korea, while the major suppliers of imported goods are China, the United States and Japan.
New South Wales has historically been a net importer of goods and a net exporter of services. Following the global financial crisis, weaker global demand and a stronger Australian dollar saw net overseas service exports weaken and the state became a net importer. However, more recent data has suggested a reversal is underway, with service exports lifting to record highs and imports falling sharply.
This recent upswing in net overseas service exports has been driven by strong growth in exports of education, personal travel (tourism) and financial services, as well as falling imports of overseas travel, transportation and business services.
The medium-term outlook for the services sector is strong as a number of Australia’s Asian trading partners, particularly China, shift away from manufacturing and export led growth, towards a more consumer and services led growth.