Western Australia close to recession: economist

A leading economist has warned that Western Australia is close to a recession as unemployment in the state continues to rise.

Merrill Lynch senior economist Saul Eslake said the sharp rise in unemployment was foreshadowing the tough economic conditions ahead for the state.

Recessions are usually defined as two consecutive quarters of negative economic growth but Eslake said such measures failed to take into account local conditions.

The unemployment rate in WA has risen to 5.2 per cent in April, a jump from 3.5 per cent in May last year, which Eslake said increased the chances of the state heading into a recession, The West Australian reported.

"WA is a very cyclical economy, and we've seen that over recent years," he said.

"In WA it's probably too early to say it is in recession but given the way unemployment is increasing it is very close."

A government report released last month has shown the investment stage of the mining boom has possibly peaked.

Capital expenditure in the resources sector is predicted to dive by two-thirds of the next five years, which will continue to effect the number of people employed in the sector.

A dramatic fall is expected in the value of projects that are already in the pipeline or have commenced.

It is predicted to fall to $70 billion by the end of 2017 while a fall to $256 billion by the end of the year is expected, the Bureau of Resources and Energy Economics report said.

If these forecasts are correct, the peak in investment passed last October, when $268.4 billion was committed to projects.

The report also noted 14 fewer resources projects are under development at the end of April in contrast with six months earlier.

The number of projects fell to 73 but their value was steady at a near record of $268 billion owing to cost blowouts.

A $150 billion worth of mining and energy projects have been abandoned or deferred over the past year.

However Resources and Energy Minister Gary Gray said investment remains at record levels even as resource projects were declining over the past year.

“The current record high levels of committed investment in the Australian mining and energy sectors are typical of resource industry business cycles,” Gray said.

“Looking at the level of committed investment in the mining sector since 1995, we can see that it increased from $65 billion in 1995 to $92 billion in 1998, before declining to a low point of around $20 billion in 2003.”

Image: watoday.com.au

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