24/12/2014 - 05:40

Recalibration for resilient economy

24/12/2014 - 05:40


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WA business is rapidly resetting its cost base and growth targets to better withstand the downturn.

Recalibration for resilient economy

WA business is rapidly resetting its cost base and growth targets to better withstand the downturn.

Traditionally, Christmas is a time for generosity and giving, a buoyant and uplifting period of the year when most of us can leave the pressures of work behind and share time with friends and family.

But sometimes the festive season’s joy is impaired by less pleasant overtones.

This year, many Western Australians will enter the Christmas break wondering what lies ahead.

The last time things were this severe was in 2008 when the GFC was rocking the world and there was a lot of pessimism about the future.

It is worth recalling the news at the time. Bankwest was offloaded to the Commonwealth Bank in a fire sale that really underscored how fragile the world economy was. The corporate finance sector had all-but closed for business, and debt was a very dirty word.

Remarkably, the GFC’s negative impact on WA was short lived. By the middle of 2009 our economy was coming back to full throttle again. Apart from some over-leveraged speculators, Western Australians were largely unaffected.

This time things may be different, but that doesn’t have to mean that there isn’t a potentially positive story.

We are seeing a settling down in demand for commodities, which boomed because China was going through an unnatural growth phase, releasing 70 years of pent-up demand in one economic explosion.

That couldn’t last forever; we all knew that.

WA has been buoyant on the back of building, but those massive levels of resources-linked construction could not go on indefinitely. We knew that too.

The reality is, prices for our commodities have plunged, but they have not yet returned to the levels of 2004 when the boom started, and they are unlikely to. At this stage, most of our key industries are profitable, even if margins have been slashed.

Jobs are being lost as operators look to cut costs, but in the main our producers are keeping the doors open and that means most employees are still working, even if it means longer hours, or losing some conditions.

Other industries that have been unable to compete with resources for labour, are now back in business. And guess what? WA’s economy is now much bigger and more self-reliant than it was a decade ago. There are more opportunities than ever here.

This is all part of the resetting of the economic dials and levels.

This newspaper remains positive that things will bottom out over the next six months and, despite layoffs, unemployment will not get out of control. It is our firm belief that, before long, we will see the productivity improvement we require to be competitive and maintain a robust economy.

But, as hopeful of this outcome as we are, we recognise that this outcome is threatened by two key economic elements.

Firstly there remains a high degree of inflexibility in workplace laws, which make it harder for this much-needed economic resetting to occur.

Secondly, state debt has grown significantly and now impinges on the government’s ability to allocate resources to soften the economic impact of falling resources prices.

This newspaper doesn’t abide by Keynsian notions of interventionist policy, but there is no doubt that if the state government had shown more restraint in spending during the boom it would now have more opportunity to stimulate important growth projects, and be less pressured by the politically-damaging process of shedding public service jobs in a downturn.


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