Minerals, energy in box seat

THE Western Australian economy will be one of the best-performing State economies over the next year, with growth of around 4.25 per cent expected in 2002-03.

Much of this growth reflects the huge amount of minerals and energy investment either committed or already under construction.

Non-mining business investment is likely to be more subdued. Prime rents have eased in both the industrial and office markets, while shop-building approvals remain weak. The exception is the hotels sector, where activity has started to recover after several years of decline.

Western Australia’s housing market is better placed to weather the next 12 months than other States, given the extent of pent-up demand for housing and record affordability levels. Nevertheless, housing construction activity will slow as interest rates rise and the first home buyer’s grant is phased down further.

Overall, activity in the construction sector should remain firm this year, with strength in engineering construction offsetting weaker activity in the residential and non-residential building sectors.

Export volumes and prices are also likely to continue to recover as the world economy picks up, although the higher Australian dollar will dampen returns somewhat. Nevertheless, activity in mining and related manufacturing industries, such as metals and mineral processing, should remain strong this year.

Tourism services should fare better than last year, although travel to remote areas is likely to be affected by higher airfares.

The resilience of household spending in WA has helped to underpin economic activity over the past year. However, as interest rates rise, spending is expected to soften somewhat, which is likely to affect house-hold-related industries such as retail trade, cultural and re-creational services and restaurants.

The outlook for the labour market remains positive, with the ANZ job advertisements series pointing to a strengthening in labour demand in coming months. While the impact on the unemployment rate is likely to be tempered by a rise in the participation rate as ‘encouraged’ workers re-enter the labour force, the unemployment rate is likely to fall below 6 per cent during 2002-03.

In its May budget the State Government announced that government spending would slow further and, combined with revenue increases, was expected to contribute to a budget surplus in 2002-03. While this will help it to retain the State’s AAA credit rating, the tax increases announced by the Government in its past two budgets add up to a sizeable impost on business.

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