PERTH (miningweekly.com) – Advisory firm Deloitte warned on Wednesday that Western Australian businesses and government units had to focus on cost reduction, productivity and competitiveness if the state was to take advantage of future opportunities and global commodities demand.

Speaking at the launch of Deloitte Access Economics in Perth, Deloitte’s Western Australian managing partner Michael McNulty said that while there would be some short-term pain around the evolving mining boom and issues such as the state’s recent credit rating downgrade, Western Australia’s fundamentals were strong, and a globally competitive and adaptable resources sector would remain critical to the state’s growth and prosperity in coming decades.

Deloitte Access Economics’ Matt Judkins pointed out that the resources boom of the past decade had had three phases: a boom in prices and profits, a boom in construction and a boom in exports.

“The current winding down of the construction phase has big implications for the West, with the ‘construction cliff’ likely to be a dominant factor in short-term forecasts.

“Project cost blowouts and relatively slower growth in China and other emerging markets mean Australia’s share of the global project pipeline is shrinking fast, and the key to extending gains in the resources sector lies in addressing cost challenges.”

Judkins noted that shorter-term issues such as Standard and Poor’s recent downgrading of the state’s credit rating from AAA to AA+ and the so-called construction cliff would not dampen Western Australia’s long-term outlook – despite a tricky transition.

“The state government’s four-year Fiscal Action Plan represents an important move in the right direction in terms of its package of reforms, but it will need to follow the private sector’s lead. More will need to be done to ensure recurrent expenditure is sustainable if the state’s increasing debt burden is to be managed.

“Doing so may help to regain the AAA rating over the longer term, remembering that a credit rating isn’t an assessment of the overall quality of budget settings, and certainly isn’t a reflection of the state’s economy.”

Judkins added that Western Australia’s economic fundamentals remained strong, and Deloitte forecast that it would retain the title of Australia’s fastest-growing economy over the coming decade.

“Recent and current growth levels can’t and won’t last, but the deluge of construction dollars at the moment has a large concentration in mega gas projects, which also have a large import component.

“As project spending drops, so too will the import spend, and while some of the heat comes out of imports, the opposite will be true of exports, which can be expected to ride the maturing resource investment cycle.”

Judkins said while there will be lower rates of economic growth in the state in the short term, Deloitte Access Economics’ analysis indicated the medium-term outlook was broadly positive.

“Within a few years we expect to see growth rates of as much as 4% and the local job market is forecast to remain stronger than nationally,” he said.

“While the medium-term outlook remains solid, it is crucial for Western Australia to look to the potential opportunities that will allow the golden run of the last two decades to continue.

“The state has been the biggest single beneficiary of emerging Asia’s initial phase of development. Asia’s boom is changing shape. This poses some challenges, but also generates new opportunities. “