CCI warns of two speed economy in WA

The WA Chamber of Commerce and Industry has warned of a two-speed economy emerging within the state.

CCI's latest Outlook publication has again revised up growth forecasts for the state to 5 per cent for 2010-11.

CCI chief economist John Nicolaou said growth will remain relatively unchanged at 5.75 per cent in 2011-12 and 6.25 per cent in 2012-13.

However he said conditions remained challenging for businesses outside or not linked to the resources sector

"The services sector, particularly retazil, are among those finding it tough," Mr Nicolaou said.

"The two speed nature of the economy has been masked by the State's overall strong growth.

"Over the past year to June the WA domestic economy grew by nearly 8 per cent - the highest annual rate of growth in nearly three year.

"This has been driven by a pick-up in household spending, and investment by business and government."

See statement from CCI below:

While the recovery of the local economy has recently hit a flat spot, the return of severe labour shortages and growing pains across the economy raises the risk of further interest rate rises over the coming months.

The threat of higher interest rates if Governments fail to plan for growth coincides with the release of CCI's quarterly snapshot of the local, national and international economies.

The State's economic recovery and labour shortfall will drive inflation higher, leaving the Reserve Bank little choice but to raise interest rates. The Reserve Bank has already declared that inflationary pressures are on their radar.

Although inflation will be a challenge that will require action by government, there will also be benefits that come from a strengthening economy.

CCI's latest Outlook publication has once again revised up its growth forecasts, predicting the WA economy will grow by 5 per cent in 2010-11. Growth will remain relatively unchanged at 5.75 per cent in 2011-12 and 6.25 per cent in 2012-13.

This will be fuelled by the continued impressive growth of our key Asian trading partners.

However, conditions remain challenging for many businesses not directly linked to the resources sector. The services sector, particularly retail, are among those finding it tough.

While there has been considerable attention paid over recent years to the challenges posed by a two-speed economy across the country, further evidence is emerging that we are facing the same problems within our own state.

The two speed nature of the economy has been masked by the State's overall strong growth.
Over the past year to June the WA domestic economy grew by nearly 8 per cent - the highest annual rate of growth in nearly three years.

This has been driven by a pick-up in household spending, and investment by business and government.

At a household level, the damaging thunderstorms that hit Perth earlier in the year resulted in a spike in car sales, and the soccer World Cup triggered more gambling. WA's growing population also meant more money was spent on staple items such as food and energy.

A surge of activity in the mining sector saw business investment grow by just over 4 per cent.
On the other hand, the local housing market continues to struggle with investment falling by 1.3 per cent in the June quarter.