Eye on China in CCIWA outlook

The Chamber of Commerce and Industry of WA expects economic growth to slow this year, as it keeps an eye on activity in the Chinese property market.

CCIWA’s half-yearly economic outlook flagged economic headwinds in China as a signal to watch, but maintained an optimistic view for the state driven by major project investment.

It forecast a slowing of growth in Western Australia's economy to 1.5 per cent this financial year, before a slight uptick to 1.75 per cent next year followed by a dip to 1.25 per cent in 2025-26.

The Chinese property market will be key, according to the report, and remains a significant risk to the WA economy.

The multi-billion-dollar collapse of property giant Evergrande, which was forced into liquidation in February, was flagged as a key example of property risk in the nation’s largest trading partner.

Floor space under construction in China fell by 7.2 per cent in the 2023 calendar year, while real estate investment dropped 24 per cent.

CCI estimates the property sector accounts for around 30 per cent of the Chinese economy, but maintained a view that other parts of its economy would sustain demand for WA product.

“We expect to see China go into a period of lower growth rates, rather than any kind of collapse,” CCIWA chief economist Aaron Morey said.

“There are still some areas of strength in China’s economy which play directly into WA’s strengths too, including high steel production, which is driving continued strong demand for iron ore.”

The strength of business investment in WA was also highlighted, with CCIWA predicting 12.75 per cent year-on-year growth driven by major projects such as Woodside’s Scarborough and Pluto Stage 2 expansion projects, and Perdaman’s urea project.

“We expect to see strong growth in imports, driven by an uptick in business investment in WA, and that is expected to detract from the overall growth number,” Mr Morey said.

“We’re also seeing some of WA’s major iron ore projects operating at close to capacity, and a drop in agricultural exports driven by El Nino weather events after a bumper year in 2022-23.

“So while the outlook is predicting a drop in growth for the overall economy, we expect WA to continue to punch above its weight in the context of global conditions.

“And while overall growth is expected to slow, domestic-driven growth or state final demand is set to remain strong.”

CCIWA warned ongoing cost pressures, industrial relation and regulatory reforms that could delay approvals timeframes posed an ongoing risk to business investment growth.

Its report predicts household spending will fall from 3.5 per cent growth last financial year to 2 per cent this year, before climbing again to 2.25 per cent next financial year.

Household spend has been impacted by successive interest rate rises which have placed increasing pressure on mortgages.

“Stronger than expected population growth, wage growth and increased property prices should lead to a recovery in spending next year, as inflation eases and predicted rate cuts take effect,” Mr Morey said.