Western Australia's economy is expected to slow by almost 40 per cent in 2008/09 and nearly 50 per cent the following financial year as the fallout from the global financial crisis impacts the state and demand for resources commodities wanes.
Western Australia's economy is expected to slow by almost 40 per cent in 2008/09 and nearly 50 per cent the following financial year as the fallout from the global financial crisis impacts the state and demand for resources commodities wanes.
The Chamber of Commerce and Industry of WA (CCIWA) said on Monday it had downgraded its economic growth forecast for the state to 3.5 per cent for the 12 months to June 30, 2009, from 5.5 per cent.
The CCIWA also cut its growth outlook for 2009/10 to 3.25 per cent, from 6.25 per cent.
Chief economist John Nicolaou said the slowdown would largely be driven by a sudden and significant drop in mining exports as international demand declined.
Mr Nicolaou said reduced retail spending also played a role as consumers engaged in belt-tightening.
"We have factored in some large falls in key commodities that we produce, and what that has meant is our exports for this financial year and next financial year are significantly less than what we first though because of the current market," Mr Nicolau said.
"We're now seeing our exports turned away from our key markets."
He said planned expansions at WA mines would continue to be postponed.
"The mining sector is being hit in terms of its expansion plans.
"But they are being delayed and deferred - not stopped.
"They will return ... when conditions improve."
Mr Nicolau said the worsening global economic meltdown in the past two months was unexpected and a cause for concern.
"We weren't expecting China to be as affected by the global financial crisis to the extent that it has."
He said WA's economy was entwined with Asia, specifically China, where solid but slower growth in gross domestic product (GDP) was expected.
China's GDP growth target for 2008/09 is eight per cent, down from 11.4 per cent in 2007/08.
"The three major economies - the US, Japan and the European Union - are technically in a recession right now, but in WA's case we're much more closely linked with developing Asia and China in particular," Mr Nicolau said.
"China continues to grow at a very healthy rate.
"That will, in effect, insulate WA from the rest of the global financial crisis."
Mr Nicolau warned that any major problems with Asian economies would quickly flow through to WA.
But he said WA's unemployment levels would remain low at 3.5 per cent this financial year and in the next year.
"Businesses will be reluctant to release too many staff - even amidst the uncertainty - because staff have become the most precious resource ... with a history of key labour shortages in this state."
He said the retail sector would not grow at the rates of recent years, but strong population growth and cuts to official interest rates would provide stimulus.
"Against that, frontline services like health and eduction and some hospitality sectors will continue to demand labour because they don't work in line with the economic cycle.
"They are more in line with an ageing (and growing) population."
CCIWA's announcement is pasted below:
Further evidence is emerging that the Western Australian economy, the engine room of the Nation, is being impacted by the global financial crisis.
The State's peak business organisation, the Chamber of Commerce and Industry of Western Australia, has today released its quarterly snapshot of the local, national and international economies, which shows although economic growth in WA remains solid, conditions are softening.
The CCI report predicts a slowdown in the WA economy, which has accounted for half of the Nation's growth in recent times, in the year ahead. Significantly, a number of major projects, mainly in the resources sector, have been delayed until conditions improve.
With a growing number of small, medium and large businesses expressing concern about the short term outlook, and business confidence at record lows, CCI has revised its economic growth forecasts for the next two financial years.
Although the WA economy will continue to experience solid growth this financial year, deteriorating international conditions have prompted CCI to revise its growth forecast for the WA economy down to 3.5 per cent in 2008-09 from 5.5 per cent.
Economic growth is expected to slow further in 2009-10 - down from 6.25 per cent to 3.25 per cent - as the full effects of the global financial crisis are felt.
Growth of this magnitude in the current economic climate is still remarkable, and puts WA out in front of other Australian States, and many developed international economies.
The slower rate of economic growth is largely the result of a sudden and significant slowdown in exports, as international demand declines.
The long term outlook for the WA economy remains positive. CCI remains confident that the current uncertainty will be short lived, predicting economic growth in Western Australia will reach just over six per cent by early in the next decade, fuelled by a recovery in the domestic and global economies.
Despite the slower rate of economic growth, demand for workers will remain strong and labour market conditions tight. Employment is expected to grow in 2008-09. The number of people out of work in WA is expected to remain the lowest in the Nation, with the unemployment rate to remain well below four per cent.
This reflects the fact that the impact on WA is likely to be temporary, not long term.
Nationally, the impact of the global financial crisis is likely to be more pronounced, with growth expected to slow to slow to 1.75 per cent in 2008-09, before picking up to 2.5 per cent in 2009-10.
While the State and National economies will continue to grow, the same can not be said for other major advanced global economies. The United States, Europe and Japan have all slipped into recession in recent months, on the back of the sub prime mortgage crisis, which has wiped trillions of dollars from sharemarkets worldwide.
A key reason for CCI's revision of local economic growth has been the sudden decline in demand for our key exports to China, a country also affected by global financial turmoil.
However, China is still expected to grow strongly, by nearly 10 per cent in 2008, and 7.5 per cent on 2009, which will ensure demand for WA's resources and other commodities remains strong.
While there is no doubt the current financial crisis is having a significant effect on global and local economies, CCI remains confident that the Western Australian economy is one of the best placed in the industrialised world to cope with the uncertainty.
The underlying strengths of WA's economy mean that Western Australia will remain the economic engine room for the Nation. CCI expects WA to be one of the world's first economies to emerge strongly from the slowdown.
CCI encourages WA's small, medium and large firms, which are a key driver of economic growth and prosperity, not to lose sight of their long term goals, and plan for the future to ensure they are well placed for the inevitable upturn, while they navigate through more difficult short term conditions.
