WA business outlook: Export bliss, but domestic woes

Media releases

WA Business Outlook

Export bliss, but domestic woes

24 March 2015: Western Australia’s economy continues to steer through the transition from a construction phase to production phase in the resources sector but, according to Deloitte Access Economics' latest WA Business Outlook, the downside of the transition is beginning to show in the domestic economy.

Key Outlook points include:

  • WA’s economic growth to soften in 2014-15 to 2.6% before picking up again in 2015-16 to reach 4.4%
  • Export volumes are forecast to rise by 6.4% in 2014-15, followed by a further 7.6% rise in 2015-16 and 10.6% in 2016-17, reflecting higher production from the resources sector
  • Private commercial construction is expected to decline by 18.1% to $39.2 billion in 2014-15, followed by a 19.2% decline to $31.7 billion in 2016-17
  • Private consumption to grow by a meagre 1% in 2014-15, and pick up marginally in 2015-16 to 1.8%
  • Unemployment rates expected to rise from 4.9% to 5.3% in 2014-15, and further to 6.0% in 2015-16.

Leader of Deloitte Access Economics’ WA practice Matt Judkins said that while the headline growth figures were encouraging, they also hide weaknesses creeping into the state’s economy.

“WA’s great resources-fuelled story is well documented,” he said. “But the transition from resources investment and construction to exports is going to come with some pain.

“Strong resources production and exports are great – in fact they are the heroes for WA’s economy. Higher volumes of iron ore exports are expected to drive a 6.4% growth forecast for exports in 2014-15, from both project expansions nearing completion as well as miners achieving greater run rates from targeted productivity and efficiency measures amidst a weaker price environment. And this strong growth is expected to continue through to 2018-19, as the major LNG projects currently under construction reach production phase.

“But exports don’t have the same positive benefits to an economy as an investment-led boom. Unwinding resources sector investment, jobs and spending impacts are not as significant and, not surprisingly, private commercial resources construction and its stimulatory impact falls away.”

As a result, Deloitte Access Economics expects WA’s growth to soften in 2014-15 to 2.6%, before picking up again in 2015-16 to reach 4.4%. Post 2015-16, growth is expected to slow year-on-year, but remain at a respectable 3.4% in 2018-19, well above the national rate of growth of 2.6%.

“The reality is that the party’s over for WA,” Judkins said. “This rather positive Gross State Product (GSP) outlook hides an economy that is looking decidedly weaker, and further key commodity price weaknesses remain a significant risk.

“An export boom also doesn’t have the same positive benefits when it comes to jobs. We are forecasting a weaker local jobs market, with unemployment rates expected to rise to 5.3% in 2014-15 and to 6.0% in 2015-16.

Judkins said that, amidst the doom and gloom, private housing investment would provide a small silver lining.

“WA has a healthy pipeline of dwelling investment, with a 14% rise in residential building approvals in 2014, and housing will provide some support to growth as affordability improves,” he said.

“Modest housing investment growth of 4.6% is expected in 2014-15, however this is expected to ramp up in 2015-16, with 13.3% growth, equating to a $1.5 billion injection into the local economy, supported by low interest rates.”

The decline in commodity prices has been reflected in the State Budget bottom line. With revenue from resource royalties drying up and a struggle to keep expenditure growth under control, total public sector net debt is estimated to be $25.4 billion in 2014-15 rising to $30.9 billion in 2017-18, according to State Treasury.

Media Contact

Simon Rushton

Corporate Affairs & Communications
T: +61 2 9322 5562
M: +61 450 530 748
Email

 

About Deloitte
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/au/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.
Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte has in the region of 200,000 professionals, all committed to becoming the standard of excellence.

About Deloitte Australia
In Australia, the member firm is the Australian partnership of Deloitte Touche Tohmatsu. As one of Australia’s leading professional services firms, and winner of both the Australian Financial Review/CFO Audit Firm of the Year and Accounting Firm of the Year awards 2013, Deloitte Touche Tohmatsu and its affiliates provide audit, tax, consulting, and financial advisory services through approximately 6,000 people across the country. Focused on the creation of value and growth, and known as an employer of choice for innovative human resources programs, we are dedicated to helping our clients and our people excel. Formore information, please visit Deloitte’s web site at www.deloitte.com.au.

Deloitte Access Economics is Australia’s pre-eminent economics advisory practice and a member of Deloitte's global economics group. For more information about publications, please visit www.deloitteaccesseconomics.com.au

Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
© 2015 Deloitte Touche Tohmatsu

Did you find this useful?