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Forecasters bewildered by choice

THE events of 2001 have forced many people to rethink their business strategies and remould the parameters within which they live.

The September 11 terrorist attacks exposed the vulnerability of a Western world integrally linked to a capitalist system and have left economic forecasters bewildered as to which direction the economy was next likely to go.

The year was marked by the lowest interest rates, both in Australia and the United States in almost 40 years, and mass lay-offs as large corporations either collapsed or massively downsized to stay in the game.

The low interest rate environment, combined with the first homebuyer’s grant, resulted in a rush in new housing and construction activity, while the low Australian dollar provided a healthy export environment.

During the year, economists spoke of a building industry and export-led recovery for the Australian economy. Their optimism appeared to be well founded.

Figures released last week indicated that Australia had defied the odds by not following the United States into recession, with season-ally adjusted gross domestic product increasing 2.5 per cent through the year to September.

The export-reliant WA economy fared even better. WA’s real domestic demand increased 8.2 per cent in seasonally adjusted terms. Between June and September, State final demand increased 5.1 per cent, driven by a rebound in business investment and residential building – the highest quarterly demand growth in WA since 1989.

But what about next year? BankWest economist Alan Langford believes the key to continued growth in

WA rests with business investment, particularly as housing demand begins to taper off and demand for commodity exports from Japan and the US remains weak.

“Our economy rises and falls, lives and dies on what happens in business investment, and it’s really soft at the moment,” he said.

But businesses seem pre-pared to open their wallets, with a new Dun & Bradstreet survey indicating longer-term optimism in the business community.

Looking ahead to the

March quarter the survey found that sales and profits were expected to be higher, resulting in an increase in capital investment expectations.

Mr Langford said much depended on just a few projects going ahead or continuing, such as the North West Shelf Train-4 project.

Alcoa’s Wagerup expansion now looked questionable, given the environmental concerns the company was dealing with and soft alumina demand and prices, he said.

For business investment to remain attractive the Australian dollar has to remain at current levels unless commodity prices also rise. “The Australian dollar has seemed to stop falling, but the last thing we would now want is a sustained 10-15 per cent increase in the dollar with an increase in commodity prices,” Mr Langford said.

He said there was a strong possibility this could occur as the Australian dollar regains the favour of the international financial community, “because the Australian dollar is driven very much by fads”.

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