04/02/2009 - 22:00

Keeping the economy moving

04/02/2009 - 22:00


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The outlook for WA is not as gloomy as some are predicting.

Keeping the economy moving

The outlook for WA is not as gloomy as some are predicting.

THE past week could rank as a turning point in Western Australia's economic prospects, judging by the flurry of positive economic and commercial news to emerge.

The Rudd government, the Barnett government, the Reserve Bank and some of the biggest resources companies in WA have delivered news that should encourage the local business community.

In Canberra, Prime Minister Kevin Rudd got serious about stimulating economic activity, announcing a $42 billion package that features extra spending on schools and roads, tax breaks for most wage and salary earners, and tax breaks for small business.

In Perth, Premier Colin Barnett responded to concern about the state's capital works program by making some clear decisions.

The new sporting stadium, the new museum and ambitious foreshore redevelopment plans are not proceeding, but the government has given the go-ahead to several other big projects, including a new children's hospital, a new rail line, and police facilities in Northbridge.

Many people are disappointed that the visionary projects will not proceed but the business community is pleased that the state government has actually made some decisions in this area. It delivers some certainty at a time when many businesses have been unsettled by the cancellation or deferral of projects.

The rhetoric from the government was all about fiscal prudence but, as Mr Barnett pointed out, there is $7.7 billion in capital works projects under way, above last year's capital works spend of $6 billion.

The Reserve Bank delivered the third piece of good economic news, announcing a 100 basis point cut in the official interest rate to a low 3.25 per cent.

Assuming banks pass on the full reduction, this is great news for homebuyers and others struggling to manage high debts.

Another big assumption is that banks allow business customers to gain access to the low-cost money.

This is where banks need to tread a delicate path. Their prudence has stood them in good stead relative to most of their international peers and nobody expects banks to say yes to every aspiring borrower. They must also ensure they do not become overly restrictive.

To put all of this in perspective, the federal government and the Reserve Bank felt compelled to act because of the difficult economic outlook facing Australia.

The federal Treasury has cut its economic growth forecast to just 1 per cent in 2008-09 and 0.75 per cent the following year, compared with forecasts of 2 per cent and 2.25 per cent made in November.

This followed revisions to the IMF's global growth forecasts - it now anticipates most of the developed world will slide into recession, while the growth forecast for developing countries such as India and China has been reduced but is still positive.

That is one reason why WA's prospects are better than the rest of Australia.

Readers should not forget that billions of dollars are still being invested in mining and resources projects in WA, primarily to fuel Asia's growth.

Woodside's $12 billion Pluto liquefied natural gas (LNG) project and BHP Billiton's planned iron ore investments are two of the biggest.

While there is a legitimate fear that planned resources projects will be shelved, there were some encouraging developments on that front this week.

As reported in this week's edition (page 5) there is no shortage of mining and infrastructure companies keen to invest billions of dollars in new projects in the Mid West. The key driver in nearly every case is the opportunities flowing from WA's links with China.

Fortescue Metals Group boss Andrew Forrest added his own piece of encouragement, predicting that China would start to recover and that iron ore prices have reached the bottom point. Mr Forrest is still looking ahead to FMG's next growth phase.

Chevron's release of its international capital spending program, which included provision for spending on not one but two LNG projects - Gorgon and Wheatstone in WA's north - was another positive.

The combination of government infrastructure spending, tax cuts and big resource projects will provide a powerful stimulus for WA.



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