Australia’s economic recovery has been faster and better than expected, with stunningly low unemployment and soaring commodity prices, but what comes next is unclear.

The latest Deloitte Access Economics Business Outlook warns the current growth won’t last. 

“We’ve ridden the current wave spectacularly well, but it has taken us about as far as it can,” according to leading economist Chris Richardson.

“Now comes the tricky bit. Commodity prices will fall, and interest rates will rise.”

He said the costs of running Australia have risen, and it will require a “complicated national conversation” to figure out how to pay for the extra dollars in defence and social security.

“But instead we’re having the usual Seinfeld election – one about nothing, in which both sides have essentially the same policies and pretend that’ll do the trick.”

Deloitte Access Economics sees inflation as less risky than in other economies, because wages aren’t growing and the stronger Aussie dollar is keeping the lid on imported costs, apart from petrol and shipping.

But with central banks moving in convoy, Mr Richardson expects the Reserve Bank of Australia to raise rates soon.

One consolation for mortgage holders and business borrowers is that markets are unlikely to be right in picking an official cash rate of over three per cent by late 2023, he says.

“That would sharply slow the economy and over-achieve on cutting inflation,” Mr Richardson said.

Crucially for Australia and for our biggest trading partner, the glory days of double-digit Chinese growth are gone.

The “biggest wildcard” for global growth this year could be COVID-19 outbreaks in China and how that may disrupt supply chains for all industries.

In the meantime, the post-pandemic global recovery is supporting Australia’s exports and war is driving prices higher.

Russia and Ukraine sell energy and food to the world, but so does Australia.

“Current conditions imply a pay rise for Australia of simply epic proportions,” Mr Richardson said.

Coal, gas and iron ore exporters are set to benefit, which will also help state and federal budgets.

The State of the States report released by Commonwealth Securities on Tuesday found all states and territories are performing well.

Economic activity in fortress Western Australia in the year to December was a whopping 36.1 per cent above its decade average.

Looking over the year to March, employment in all states and territories recorded annual gains. 

Doing best were WA and South Australia with jobs growth of four per cent, followed by Queensland (up 3.8 per cent).

“The opening of local and foreign borders will continue to support the Queensland economy,” CommSec chief economist Craig James said. 

“And Western Australia may also benefit from re-opening of borders, but to a lesser extent.”

Tasmania is still the best-performing economy overall across eight indicators, followed by Victoria on strong retail spending and housing finance, with Queensland and WA equal third.

The ACT and South Australia are equal fifth, NSW seventh, and the Northern Territory is last.

By Marion Rae in Canberra, AAP