Mining comprises about one fifth of Western Australia’s economy, about four times higher than for Australia as a whole.
As a result, WA has benefited enormously from the rapid increase in global demand for minerals and energy over the past two years, emanating in particular from China. For WA, this has translated into strong growth, high business investment, particularly in mining, and a booming jobs market.
It has also led to solid increases in house prices in Perth, which rose by about 10 per cent over the past year, compared with flat prices nationally.
This period of prosperity for WA is no flash in the pan. China, and the other emerging giant, India, will continue to grow at around current rates over the next five years – say 8 to 8.5 per cent for China and 6.5 to 7 per cent for India.
Within two decades they will probably be the world’s largest and third largest economies, respectively. Their appetite for resources will be huge, partly because of their strong growth rates but also because they are still at a stage of industrialisation where demand for resources grows even more rapidly than GDP.
This points to several clear trends for the WA economy.
First, economic activity will still be very sensitive to developments in the global economy, but on balance should be faster than the Australian average, as WA continues to leverage off the strong Asian growth momentum.
Second, employment growth will remain strong, both in mining and in associated activities such as construction, infrastructure and downstream processing.
Third, these jobs gains will, in turn, continue to underpin population growth, inducing increased migration from the eastern states and from overseas.
And fourth, firm population growth will help to maintain demand for housing and keep prices firmer than in the eastern states.
• Saul Eslake is chief economist at ANZ Bank.
