WA Economic Outlook - April 2018
Getting back on the bike
5 April 2018: The upturn in prospects for Western Australia’s economy is gathering momentum, according to the latest Deloitte Access Economics WA Economic Outlook.
On a trend basis, state final demand increased by 1.1% in the final quarter of 2017 compared to the year before. At the same time WA’s trend unemployment rate also dropped from 6.3% to 6.0% in the 12 months to February 2018.
Western Australia Deloitte Access Economics lead Matt Judkins says there are three important factors driving this growth.
Chinese growth continues to support Western Australia exports
“Firstly, Western Australia is a direct beneficiary of strengthening global growth and demand for commodities,” explains Judkins. “Chinese growth remains central to the outlook for the state, accounting for over 80% of our iron ore exports. Our export growth will also continue to the most important economic engine over the next five years as the export of liquefied natural gas ramps up.”
Western Australia growth is becoming broader based
“Second, the slowdown in business investment that has dragged on growth since the end of the mining construction boom in 2012, is coming to an end. Recent data from the ABS shows while business investment in Western Australia has remained volatile, the worst of the contraction has passed. We expect improved broader economic growth in the near-term, provided interest rates remain low. Though growth is returning, it is likely to be at slower pace than WA has experienced in recent years.
Employment is growing, but wage growth remains slow
Judkins adds: “Finally, the emerging growth is translating well into job creation in both full and part-time opportunities. Pleasingly, the share of people underemployed – those willing to work longer, but without the opportunities – is falling. This is a shift from a dependence on part-time growth that has characterised the post mining construction boom period in Western Australia.”
While positive, signs of recovery have yet to filter through to household spending.
“Our last WA Outlook emphasised the importance of a recovery in household income and expenditure, but this remains weak. Recent growth in employment has reduced spare capacity in the labour market, but there is still a fair way to go before a lack of available workers begins to put upward pressure on wages,” he says.
The property market is slowly turning
Indications are Perth’s property market is also past the worst. January new building approvals fell year-on-year, but improved on a monthly basis. Property prices continue to decline, but at a slowing rate.
“Overall the prospects for Western Australia are encouraging, but it remains early days,” concludes Judkins. “The upturn does not come without a number of risks to the outlook. A significant downturn in Chinese growth would weigh heavily on the state and an escalating trade war could undermine exports earnings. Domestically, an increase in interest rates could undermine already weak consumption within the state. However, the likelihood of these risks materialising in the short-term are relatively low.
“Official data illustrates a shaken economy, knocked off its bike and in the process of getting back in the saddle: shaky at first, the Western Australia economy is re-establishing balance and we expect it to pedal-off, albeit at a much slower pace.”
Read the WA Economic Outlook.