Economic optimism surfaces

WA’S economic future in the coming year will be a mixed bag, says Chamber of Commerce and Industry chief economist Nicky Cusworth.

Ms Cusworth said the sharp decline in business investment in 1999 would still bite parts of the economy over the next few months.

The decline in business investment is a delayed reaction to the Asian financial crisis.

Unlike the eastern States which can rely on domestic consumption, WA needs business investment.

“The engineering and construction people are doing it tough,” Ms Cusworth said.

“It’s proved to be very hard on the regions.”

However, the world is now entering a period of higher commodity prices and demand.

Commodity prices languished for a large part of 1999.

“I’m optimistic that we’ll see a pick up in business investment in the coming year,” Ms Cusworth said.

“Even so, for the engineering and construction sectors it will still mean a wait until projects come online.”

Association of Mining & Exploration Companies CEO George Savell said he was “cautiously optimistic that 2000 would be a better year” for his industry.

“Things are starting to look a lot better in Asia and there are reports Europe is back on the up although the gold industry is still suffering,” he said.

The Asian collapse and Central Bank gold sell-offs are still hurting the gold industry.

The banks did agreed to limit their gold reserve sales later in 1999.

“Those mines still operating are doing so in a long-term mode,” Mr Savell said.

“They feel if the price doesn’t drop again, they should be okay but the gold price has really hurt the exploration side of the industry.

“Since the peak in 1997, the gold industry has cut $242 million from its exploration spending and 70 per cent of that is in WA.”

Ms Cusworth said the prospect of rising inflation had been hotly debated. She said there would be a one-off jump due to the GST.

Ms Cusworth said there was a risk inflation could be helped along by GST-related wage claims.

“Simultaneously with the GST there will be some high personal tax cuts,” she said.

“If it gets factored into wage claims there is a good chance of cost plus inflation.

“It really ought not to be necessary because it ignores the wage effect of the tax cuts.

“The Reserve Bank is more convinced than we are that the economy is in danger of overheating.

“Admittedly, our economic activity has taken some economists by surprise but the 1.5 per cent jump in interest rates should only happen if there is genuine inflation.”

Ms Cusworth said an interest rate hike of that magnitude could flatten any business investment.

“Currently all Australian economic growth is consumer driven,” she said.

“Moves to stop that will hurt business investment.”