Confidence high but costs threaten

Western Australia’s burgeoning economy shows no sign of abating, with business investment spurring on record levels of growth for 2006.

But rising costs continue to cast a shadow over businesses as the economy runs up against a clutch of capacity constraints.

The WA Department of Treasury and Finance's mid financial year forecast for the state final demand at 10.5 per cent was well below the actual figure of 14 per cent, according to the Australian Bureau of Statistics.

Treasurer Eric Ripper said the state’s domestic economy was largely driven by business investment with the private sector growing by 26 per cent over the year to June 2006, while the public sector grew by 16.5 per cent over the same period.

ABS figures showed a 2.2 per cent drop off in the exports of goods for the year to June 2006, to $10.2 billion, and imports continued to grow, from $3.8 billion in June 2005 to $5.4 billion in June 2006.

The export performance was a key concern to some analysts, with exports not able to keep up with imports despite the resources boom.

But there could be a turnaround, driven by new mine projects.

85 per cent of businesses that participated in the latest CCI-BankWest Survey for Business Expectations believed the WA economy would remain strong or strengthen over the next 12 months.

Most businesses considered rising costs, including high fuel prices and labour costs, to be of greater concern than the August increase in interest rates.

BankWest chief economist Alan Langford said respondents’ concern about rising costs was due in part to the large difference between Perth’s inflation rate of 4.7 per cent and the national rate of 4 per cent.

“As WA’s booming economy surges ahead of most other states – NSW in particular – rising costs are the unhelpful flip side of an economy running up against a clutch of capacity constraints, both in labour and materials,” Mr Langford said.

Rising costs have not curtailed Western Australian spending habits.

The state headed the rest of the country in retail spending, with clothing and soft good retailing and household good retailing growing at 10.7 per cent and 10.4 per cent respectively for the year to June.

The Federal Chamber of Automotive Industries new vehicle sales figures, to August 2006, showed a 10 per cent increase in sales from 65,350 in August 2005 to 72,124.

Higher petrol prices and interest rates were the major reasons behind a 0.8 per cent seasonally adjusted fall in August for new vehicle sales in WA, according to ABS figures.