Western Australia will experience sluggish short term growth as the state transitions from its mining construction bonanza.
But there is a glimmer of hope down the line with other sectors showing signs of development and growth for the State’s economy, leader of Deloitte Access Economics in WA, Matt Judkins said.
Releasing its latest WA Business Outlook report, Judkins said it’s a case of the ‘bigger the boom, the bigger the bust’ and cushioning the impact of mining’s “construction cliff” requires careful management.
“Western Australia’s construction boom has been very big, meaning the downside potential is too,” he said.
“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 WA’s economy was due to businesses’ investment in capacity expansion – mostly new mines and equipment to feed rapid economic growth in Asia.
“It has always been the case that project spending drives the big cycles in WA’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.”
With the total value of projects continuing to fall and project completions outpacing new developments, WA’s economy is already caught in the crosswinds of a changing tide.
According to the report the transition has already ripped a $100 billion hole in the project pipeline, and there is more pain to come with slower economic growth expected to continue into the next financial year.
“All of this translates to a weakening short term growth outlook for the Western Australian economy,” Judkins said.
“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.”
Judkins said that, in spite of the slowdown, there was still cause for optimism with medium term forecasts for WA’s Gross State Product (GSP) growth expected to remain above the national trend.
“We still see WA rebounding quickly to growth of around four per cent and retaining the mantle of Australia’s fastest growing state over the next decade,” Judkins said.
Bolstering the rebound, Judkins explained while most sectors in WA are looking weaker, the housing market is making some inroads.
“Housing finance is no longer growing in leaps and bounds, but it is well above its 2010 lows and, despite a recent lift in rental vacancy rates, building approvals are also making ground,” he said.
“In fact 2013 recorded the highest number of new private housing approvals since 2006. It looks as if 2014 may be the peak year for the current housing construction cycle, but we see good gains extending into 2015 and 2016 as well.”
While no industry looks ripe to replace the mining sector, Judkins maintains there is still ample opportunity for WA to broaden its reliance away from the resources industry.
“While a number of sectors of the economy will benefit from a lower Australian dollar, ultimately we need to offer something the world wants,’ he said.
“As we move through coming years, we hope to see a renewed focus on agriculture, tourism and international education, three sectors we believe offer the economy the potential for further ‘super-growth’, albeit perhaps not on the same scale as the recent resources boom.
“It is these industries in which we which we have both a competitive advantage, but which also offer a growing global opportunity.”
To download a copy of the WA Business Outlook click here.