WA economy forms greater reliance on other sectors

5th February 2014

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

  

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PERTH (miningweekly.com) – The Western Australian economy would increasingly be propped up by other sectors as investment in mining continued to decline, advisory firm Deloitte reported.

Deloitte Access Economics leader Matt Judkins said at the release of the latest business outlook, that Western Australia’s growth would slow notably in the short term, under the weight of the so-called mining ‘construction cliff’.

“Western Australia’s construction boom has been very big, meaning the downside potential is too,” he said.

“However, timing is everything and the ability for the state to manage a transitioning economy depends on how the move from mining construction to production plays out and the speed with which other sectors of the economy pick up."

At the peak of the boom in 2012, a third of all spending in Western Australia’s economy was owing to businesses’ investment in capacity expansion – mostly new mines and equipment to feed rapid economic growth in Asia, Judkins pointed out.

“It has always been the case that project spending drives the big cycles in Western Australia’s economy, and it is no surprise that the transitional shift from construction to production will create a down-tick in short-term growth prospects.”

He added that the state’s engineering construction sector had arguably been the single greatest benefactor of the resources boom.

“First it was iron-ore that emerging Asia wanted in spades, and more recently Western Australia had been betting the house on the expectation that there will be an equal appetite for its liquefied natural gas (LNG) reserves.

“Although iron-ore prices are still solid and LNG prices are still protected by contract from the lower gas prices evident in US markets, the big question is how many more massive resource construction projects will Western Australia manage to get off the ground as global competition for resource investment money heats up, and at a time when the world has already seen a glut of resource investment.”

Deloitte reported that the total value of projects has continued to trend down, as project completions have outpaced the new developments coming on line. This left a A$100-billion hole in the project pipeline. 

“All of this translates to a weakening short-term growth outlook for the Western Australian economy,” Judkins said.

“With more of that slowdown projected to fall into 2014/15 rather than 2013/14, the growth we forecast in September’s Business Outlook for 2014/15 has been revised down to 1.1%.

“But this is not the disaster it may seem, as the big driver is a shift in the timing of the capital expenditure slowdown, rather than any fundamental change.”

Deloitte’s medium term forecasts for gross state product growth remains above the Australian trend, and Western Australia was still expected to rebound quickly to growth of around 4% and retain the mantle of Australia’s fastest growing state over the next decade.

Edited by Creamer Media Reporter

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