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Deloitte Access Economics WA Economic Outlook: More pain, some gain
With the worst of the downturn passing, it’s time to have a serious think about Western Australia’s economic future.
6 June 2017: Forecasts suggest Western Australia’s Gross State Product (GSP) is expected to rise by 0.9% in 2016-17 and just 0.2% in 2017-18, according to the latest Deloitte Access Economics WA Economic Outlook.
The domestic economy (as measured by State Final Demand) is expected to contract by 7.4% this financial year, followed by a further 1.2% decline in 2017-18 before a return to growth thereafter.
“Stripping away the impact of net exports, brought about by higher commodity prices, lays bare the challenges facing Western Australia,” says Deloitte Access Economics partner Matt Judkins.
“The eventual return to growth is underpinned by stronger private consumption as low interest rates, slightly higher wages growth and subdued consumer prices stoke moderate spending growth. However, we don’t expect business investment to grow in year-on-year terms until the middle of the next decade. If this eventuates, it would signal a lost decade of investment for the State. Indeed, the value of Western Australian business investment in the mid-2020s would return to 2005-06 levels in real terms if this occurred.”
What's next for WA?
Output of the Western Australian services sector is much smaller than the non-services sector (resources, manufacturing, agriculture, utilities, construction and wholesale trade). The issue being growth in the non-services sector (resources in particular, which makes up 60% of this slice) drives much of the growth in the services sector. So when miners sneeze, retailers catch a cold.
“The diversification debate is not just about new industries,” says Michael McNulty, Deloitte Western Australia Managing Partner. “It’s also about forging new markets for existing industries – particularly our services sector.
“Enabling the services sector to pivot to markets where demand is driven by something less volatile and more sustainable than world commodity prices is important. These are not easy issues to resolve, although there might be a better way to reach this end goal.
“In fact, resources could be our ticket to achieving greater diversification by leveraging what we’re already good at to build new industries and forge new markets. An opportunity exists to leverage the knowledge of the resources sector to build the State’s capacity for science, technology and innovation. Western Australia’s resources sector is nationally renowned as an avid investor in, and applicant of R&D, particularly in digital. Think driverless mining trucks and autonomous drill rigs in the Pilbara.”
What’s on the horizon for WA?
Deloitte’s latest Building the Lucky Country publication - ‘What’s over the horizon? Recognising opportunity in uncertainty’ - examines possible futures for the State economy. One such scenario considers what happens if Australia goes ‘cyber smart’: embracing new technology and investing confidently.
“There is no doubt digital technology will play a bigger part in our economic future than it has to date,” adds McNulty. “It’s time to think hard about that future and how we can shape our digital destiny to get a bigger slice of the opportunities it presents.”