Economy needs firm hand at the wheel

Last week, WA Business News compiled a scorecard showing how WA’s economy and economic performance compares with other States. On pages 10-12 this week we seek out a number of leading economists to get their views on what the future holds for the State in 2002-03.

p Gary Kleyn

WESTERN Australia’s economy is at the crossroads, with the economic drivers of 2001-02 unlikely to provide the stimulus for 2002-03.

Despite this, economists are upbeat about the State’s immediate future, basing their optimistic economic outlook on sustained business investment and export sales. If neither performs to expectations, however, the economy will slow down to a more moderate growth level.

Economists spoken to by WA Business News pointed to strong residential activity as the major contributor to growth over the past year. Low interest rates and the first home buyer’s grant led to a seasonally adjusted increase of 30 per cent in residential approvals in the year to the March quarter 2002.

However, with the looming reduction in the grant and the Reserve Bank tightening monetary policy through 2002-03, economists are expecting a contraction this economic quarter.

ANZ senior economist Melanie Hay is more optimistic than her colleagues about local housing prospects, believing that WA is better placed than other States because growth has been more controlled and sustainable. She said there was still some pent up housing demand, which would keep housing starts filtering through.

Her optimism may yet be proved correct, with Australian Bureau of Statistics figures showing an unexpected increase in approvals during April. Residential approvals, which provide the first window into the future of housing activity, rose 15.5 per cent, while approvals nationally maintained growth of only 5.3 per cent in April.

But economists in general remain sceptical of housing prospects with interest rate rises dampening de-mand.

And according to WA Chamber of Commerce and Industry chief eco-nomist Nicky Cusworth, it won’t just be housing that will be affected by the interest rate rises.

Consumer spending also was likely to fall back, while government spending, both at Federal and State levels, would contribute less to economic growth than has been the case in previous years.

So, with consumer spending and governments losing their impact on economic growth, the future rests with business investment and export growth.

BankWest economist Alan Langford believes business in-vestment will be enough to offset

the cyclical downturn in housing.

Ms Cusworth, however, questions whether the 21 per cent growth in investment during the 2001 calendar year will be sustainable.

She believes the rate of growth will fall, and so business investment will diminish as a contributor to economic growth in the next financial year.

Exports, considered the main thrust of economic growth in the past two years, will also need to continue performing for WA to reach growth targets.

External influences such as world economic growth will be the real measure against which the exporting industries will be tested.

Economists will be watching closely to see just how high the Australian dollar goes before being able to make judgement on WA’s continuing export competitiveness.

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