As the scouts say ... be prepared

13/08/2009 - 00:00


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Multiple economic reviews have reached varied conclusions but the outlook for Western Australia clearly has many positives.

As the scouts say ... be prepared

THE International Monetary Fund has provided a reality check for those who believe Australia has seen the worst of its economic problems.

In a report released last weekend, the IMF took a decidedly downbeat view, which contrasted with the relative optimism of the Reserve Bank and the federal Treasury.

The IMF said: "the near-term outlook for growth is weak and highly uncertain".

It concluded that house values in Australia are overvalued by between 5 per cent and 20 per cent, though that commentary makes more sense on the east coast than it does in Western Australia. House prices in WA remain weak, in contrast to the surprising buoyancy in other states.

Looking further ahead, the IMF concluded that national growth would peak at 3.7 per cent by 2012 before easing back to around 3 per cent.

Treasury, by comparison, is expecting much stronger growth and more sustained growth of 4 to 4.5 per cent for several years from 2011-12.

Similarly, the Reserve Bank last week revised up its economic growth outlook, which of course means the next move in interest rates is expected to be up.

"The recent stronger than expected economic data and the general improvement in sentiment both in Australia and abroad have reduced the likelihood that a further (interest rate) reduction will be required," the Reserve Bank said in a statement last week.

The extent and speed of interest rate increases will be partly influenced by the federal government's budget stance.

Kevin Rudd and Wayne Swan have poured billions of dollars into the economy via tax cuts and higher spending, which has no doubt eased the slowdown but left the nation with higher debt and the risk of too much stimulus. How quickly things change.

The IMF report is likely to reinforce the wary caution that characterises the outlook for most businesses in WA and elsewhere and Australia.

After the shock of last year's dramatic banking and financial market crash, many people are understandably hesitant about opening their wallets again.

With a wary mindset, many people will latch onto the IMF's more sombre outlook, potentially to the extent that it might become self-fulfilling.

The mixed messages coming from economic experts mean it might be more fruitful to focus on developments in the real economy.

In that regard, nothing is more significant than the pending formal go-ahead for the Gorgon gas project.

It is hard to overstate the significance of a project that will involve an up-front capital spend of about $50 billion.

(That figure has never been officially confirmed but ever since Premier Colin Barnett let it slip a few months ago, it has become the accepted benchmark.)

Gorgon will be the largest-ever private sector project in Australia and the commercial flow-on will spread across most sectors of the economy.

And it won't be on its own. There is a very high likelihood that the region will enjoy a succession of large liquefied natural gas (LNG) projects over the next few years, including Woodside's stage-2 Pluto development, Inpex's Ichthys project in Darwin, Exxon's PNG project and Chevron's Wheatstone project near Onslow.

Add in the continued expansion of the iron ore sector in the Pilbara and the Mid West, the emergence of WA as a uranium producer and various other resources projects to get a picture of WA's outlook.

The withdrawal of foreign bank lending and the general tightness of credit markets will to some degree offset these positives.

The Chamber of Commerce and Industry WA's latest economic forecasts provide some helpful perspective for the local business community.

The CCI has forecast the state economy will contract by 1 per cent in 2009-10 but sees a quick and strong turnaround after that with growth of about 5 per cent in 2011 and 2012.

Businesses that are prepared for this upturn will reap the biggest benefits.


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