Low interest rates and booming property markets have lifted the economic strength of the country's two largest states.

NSW and Victoria outperformed other states in 2014, as Western Australia and Queensland were hit by the downturn in mining investment, National Australia Bank says.

“Higher housing prices, low interest rates and an undersupply (of housing) has encouraged a surge of residential construction approvals that should contribute notably to growth this year particularly in NSW and Victoria,” NAB said.

Falling employment due to a shift from mine construction work to less labour intensive mining operations, plus a lack of non-mining business investment, are set to constrain demand in WA, the bank said

“The sharp fall in iron ore prices towards the end of 2014 is also expected to put a material dent into the state governments coffers,” it said.

Queensland faces a similar situation, with a wind down in mining investment weighing on economic growth, though liquefied natural gas (LNG) exports will deliver a strong boost in 2015, NAB said.

But the mining downturn and lower commodity prices will keep employment and demand relatively weak, it said.

QLD, NSW CHARGE AHEAD ON ECONOMIC GROWTH TABLE

  • QLD tipped to rise to 5.6pct in 2015 from 2.5pct
  • NSW to rise to 2.8pct from 2.7pct
  • Vic to rise to 2.4pct from 2.2pct
  • WA steady at 2.3pct
  • SA to rise to 2.0pct from 1.6 pct
  • TAS to rise to 1.7pct from 1.5 pct