Mixed fortunes for Western Australia’s economy in latest CCI report
A mixed picture
Western Australia’s economy is entering a period of change, according to the latest report from the Chamber of Commerce and Industry (Nov 2014). The last decade has seen a period of continuous expansion – the state’s economy has doubled in size and 400,000 jobs have been created. But challenging times lie ahead and the previously widespread mood of optimism seems to be on the turn.
The end of an era?
One of the main reasons expectations have been downgraded is the belief that the resources investment boom has peaked. This shift in economic balance ushers in new challenges: the need to find fresh areas of growth and a source of jobs. After all, no-one wants to contemplate the possibility of a recession.
The CCI report is forecasting the WA economy to grow by just 4% in each of the next two financial years – slightly below the recent long run average.
CCI chief economist John Nicolaou said the downward trend represented a ‘normalisation’ of the state’s economy. ‘Growth rates are more trend-like and are consistent with an advanced economy which is growing strongly and will ensure job creation,’ he added.
But that’s not stopped people from fearing the worst. John Nicolaou continues: ‘One of the big challenges we’ve seen is the decline in consumer and business confidence. That’s the key reason we had to downgrade our forecast for last financial year and the key reason our forecasts for this financial year are lower than previously expected.’
The downturn has been fuelled to some extent by Western Australians’ concern over economic uncertainty which has hit consumer spending and had a knock-on effect on retail turnover, which grew by just 1.4% last year – the weakest year of sales growth for almost 14 years. Spending is down on electronics, clothing, footwear and soft goods, as well as in cafes and restaurants – a sector that’s previously shown itself to be very resilient up to now.
However, the CCI predicted that retail spend has now levelled out, with a rise to 3 per cent anticipated in 2014-15 and 4 per cent in 2015-16.
Not all doom and gloom
While it’s true that ore prices are down from their historical high – thanks to greater supply and weaker overseas demand – there’s still plenty of good news.
Although WA’s terms of trade (the ratio of export and import prices) have fallen slightly, they’re still well above average and key commodity prices are still relatively high, too. The cost – and availability – of labor have started to ease, with wages gaining just 2.4% over the period, and WA still has the lowest unemployment rates (5%) of all the states.
Low interest rates and the growth in population have also seen the housing construction sector continue to rise, although prices of established housing stock in Perth have resisted the rises that have been a feature of the East Coast boom. The report claims that the housing market will be an ‘important driver’ of the local economy going forward, with the state government’s infrastructure program adding to the sector’s output in the coming years.
With the global economic climate showing signs of steady recovery, the biggest concern for WA is the slowing of industrial production in its biggest trading partner: China.
So what lies ahead?
Despite this period of transition, the WA economy is still expected to grow by 4% in this and the next financial year. The drivers of growth are likely to be different with the buoyant residential construction sector eclipsing growth in the traditional iron ore market. Business investment is expected to fall more than previously expected and consumer activity is likely to remain subdued for some time. CCI does expect WA’s exports to rise in volume if not in value.
If, as the report states, ‘Western Australia’s narrative is changing’, we’ll have to continue to diversify our economy and make the most of new and emerging opportunities for growth and expansion.