WESTERN Australia’s economy continues to deliver strong results and outperform the nation as a whole, with a forecast economic growth for 2006-07 of twice the national average. The positive outlook for the state comes from the Chamber of Commerce and Industry of WA’s latest quarterly Economic Compass report, which predicts a growth rate of 6.5 per cent next year compared with a national figure of 3.25 per cent. CCI chief economist John Nicolaou said the driving force behind the state’s economic boom had been the continued strength of its domestic economy, which the most recent data indicated was expanding by over three times the rate of growth recorded nationally. “WA’s domestic economy is powering along boosted by solid growth in household consumption, a new wave of business investment activity, and a resurgent housing sector, which has defied the downturn nationally,” Mr Nicolaou said. It is expected that these strong conditions will continue over the medium term. The state’s continued economic strength will ensure it remains a key driver of the national economy, which is expected to achieve a more moderate level of growth. However, capacity constraints in the form of well-documented skills shortages provide a major future warning sign for the state, placing a restriction on the extent certain sectors of the economy will be able to grow. In the future, increased production capacity in the mining sector and strong demand for the state’s commodities should mean exports make an even greater contribution to the state’s economic growth. In particular, manufacturing sector exporters, who have suffered in recent years from the competitive disadvantage of a strong Australian dollar, may benefit from the recent depreciation of the currency. Robust levels of demand, highlighted by the strength of the property market, have resulted in an increase in inflationary pressures. WA’s inflation rate was 4 per cent in the 2005 calendar year, well above the national rate of 2.8 per cent. Household consumption in WA increased by 1.2 per cent in the December quarter and by 4.4 per cent in the 12 months to December 2005, and is significantly higher than the national results of 0.7 per cent and 2.9 per cent respectively. An outcome of high consumer spending activity was an increase in the level of consumer debt and associated rises in interest payments. Consumption patterns varied across different goods and services, with the purchase of motor vehicles in WA up by 20.9 per cent, and furnishings and household goods up by 8.2 per cent. Housing investment, both in the new and established dwellings, strengthened in the second half of 2005. Overall, housing investment rose by 7.2 per cent in the December quarter to be 10.2 per cent higher over the year to December 2005. Again the state outperformed the national result, which experienced a 2.7 per cent fall in housing investment for the December quarter, and a 2.1 per cent drop for the year. Perth’s median house price rose to $325,000 in the December quarter, behind only Sydney, at $518,000, and Melbourne ($375,000) in capital city prices. Meanwhile, business investment accelerated strongly in WA in the first half of 2005-06, underlined by a 13.9 per cent increase during the December 2005 quarter. Machinery, equipment and non-residential construction investment contributed to the bullish growth in business investment over the past year. The strength of the state’s mining sector is expected to underpin strong business investment in the foreseeable future. This is supported by Access Economics Investment Monitor for the December quarter 2005, which shows about $118 billion worth of investment projects either under construction or under consideration in WA.