WA Economic Outlook - August 2018
Ringside for the trade war
30 August 2018: Western Australia’s economy continues to recover, hitched to the strong performance of the global economy. However, risks to this outlook have heightened in the last three months as rhetoric from ‘strongmen’ leaders is followed by action and an escalating trade war.
Against this background, Deloitte Access Economics latest WA Economic Outlook reveals the post-boom economy isn’t set for another mining investment boon any time soon.But there are some green shoots for construction activity in WA, including BHP’s $4.8 billion South Flank iron ore project, and promising signs for lithium, nickel and transport infrastructure in coming years. However, much of this relies on the global growth maintaining momentum.
Deloitte Access Economics WA Lead Partner Matt Judkins said the WA rebound is slow and steady.
“We continue to emerge from the worst economic downturn for WA in living memory,” Judkins said.
“Part of this recovery is undoubtedly due to renewed global growth boosting WA’s commodities exports.
“This is positive - prospects for the rest of the world will only become more important as WA becomes an emergent LNG super power.
“The green shoots of investment in new mine development is direct evidence of these positive effects.”
Judkins said while the outlook is increasingly bright there are threats to the outlook that cannot be discounted.“In particular, while the Chinese authorities maintain space to manage a debt crisis should it arise, this becomes immensely harder if you are fighting an escalating trade war at the same time.”
In addition to international risks, a number of other risks and the inhibitors risk stifling growth:
Low population growth of 0.8 per cent (21,400) in 2017 has resulted in low demand for housing, and Perth house prices falling or remaining flat for the last four years.
- The median house price in Perth was the same in the March quarter of 2018 as it was in the September quarter of 2010, so buyers who acquired property during that eight-year period are more likely than not to be feeling some pain.
- There is still significant slack in the WA labour market, with 11,800 jobs created in the year ending July 2018. Only 1,800 of these were full-time compared to 10,000 new part-time jobs.
- Political instability in Canberra comes at a time when uncertainty over Australia’s tax arrangements and energy policy is a blow to already-cautious WA households and businesses.
Judkins said on a brighter note the Federal Government is likely to chip in to repair the State Budget over the medium term, thanks to planned reforms to the GST distribution formula.
“Under the two-part plan WA would get an extra $1.4 billion over 2019-20 and 2020-21 in top up payments, taking our effective share to 70c in the dollar, followed by an extra $3.3 billion over the subsequent six years to 2026-27, when the new benchmarking formula is implemented, taking our share to an estaimated 83c in the dollar.”
On balance and despite China’s economic slow down, Judkins noted “at this point in time a negative hit to the State economy is more likely to come from Canberra or Sydney than Washington or Beijing.”
Read the WA Economic Outlook.