Twelve months is clearly a long time in an economy, as WA’s remarkable turnaround indicates.
TAKE yourself back a year ago to when the global financial crisis erupted.
Perhaps, like many of Western Australia’s business leaders, you were sitting on a Rottnest porch looking across as the distant, sparce peaks of Perth’s commercial centre, watching the virtual plumes of smoke rise from what was expected to become a business wasteland.
Back then few would have doubted that the WA economy was in for a hard shock, with long-term ramifications.
Resources, many expected, were to suffer the most as the world’s economies shrunk.
Some jokingly contemplated hibernating on Rotto for a few years while the globe recovered enough to start buying our resources again.
After all, there are worse places to be unemployed.
Yet, 12 months later, that drastic scenario has simply not played out. WA is back in business, almost as if last year’s meltdown was merely a blip, as the economic indicators show (see table facing page).
The data shows even lagging indicators will be positive after this year.
The Australian dollar is back near its peaks of 12 months ago, interest rates are rising and everyone is worried about labour shortages again.
The boom is back on, even if Premier Colin Barnett refuses to use that word.
The long-expected go-ahead for the Gorgon LNG project, estimated to be as much as $43 billion, has underscored the confidence that many already felt. Long-term demands for energy and minerals, especially in growth economies such as China, have over-ruled short-term concerns about capital and consumer demand.
For WA that has meant a massive shot of confidence.
BOOM II – THE SEQUEL
“The construction boom that is about to take place will dwarf the last boom and will last for most of the next decade,” said ACIL Tasman executive director Ian Satchwell.
While the building phase created by projects such as Gorgon has already helped shift local sentiment into very positive territory, Mr Satchwell believes the end result of this construction period is a big and permanent expansion of the WA economy.
“The opportunities centre on transformation of the Western Australian economy into a global energy and minerals powerhouse, as well as an integrated global minerals and energy service centre,” he said.
“The challenges involve how WA quickly develops the capacity to manage these challenges and make the most of the opportunities.”
So if the boom we are about to enter is bigger than the one we just had, then the challenges are expected to be the same, but also exaggerated. Adding to that is the fact that the one-year-old conservative government might have promised changes but the lull in activity was not long enough to actually implement many of them.
Local economists continue to cite the same issues (see pages 16-17).
Approvals, especially those relating to land supply, as well as the interlinked issues of migration and skills loom large – again. It’s like one of those rare movie sequels that is expected to generate far bigger audiences than the original – even with the same cast in place.
Have we taken the opportunity to patch up the problems encountered during the last boom?
The state government would argue it has. It has instigated reviews across the key approvals areas and hopes to have several bills before parliament soon, which will provide for a more efficient process.
Most likely much of that will occur early next year but it is, nevertheless, progress.
However, industry remains wary of just how much can be achieved. In many cases the bureaucracy remains understaffed or the wrong culture exists.
The state government has also identified this issue and is trying to remedy it.
While unemployment remains sticky in WA and is predicted to remain at current levels for the remainder of the year, the current peak is not historically high and many employers believe that most of the losers from recent downturn were those who were possibly unemployable in any other circumstances.
IT’S NOT JUST WA
While the near recession was shallow and short-lived in WA, there are signs that the rest of the world is now bottoming out from a much deeper trough.
In the US, the Dow Jones Industrial average has been surprisingly strong given the doom that has pervaded North America.
Last week, positive economic data and corporate earnings boosted sentiment there.
On Friday, finance giants Goldman Sachs and Citigroup, last year crippled by the meltdown and fighting for their corporate lives, both glided past analysts’ expectations with ease while fresh data on initial claims for unemployment benefits insurance and consumer prices in the country were also viewed as positive.
“The current earnings season is unfolding better than expected with virtually all the big name companies that have reported earnings thus far topping estimates and generally delivering revenues that were close to or above estimates,” a US analyst said, according to AAP.
Of course, WA’s good fortune is partly due to the strength of the Chinese economy, which has joined the global stimulus efforts, mainly with infrastructure spending that has boosted the need for commodities.
China’s spending surge has been so big that new loans granted in the first nine months of the year by all financial institutions hit a record 8.67 trillion yuan ($A1.41 trillion) as banks responded to Beijing’s calls to help ward off the effects of the global downturn. The figure was 5.19 trillion yuan more than in the same period in 2008.
NOTES OF CAUTION
Of course, stimulus is far from a scientific process and there are some concerns that China may have overdone it and will struggle to keep the pace up if the US and Europe take too long to emerge from their economic winters.
Chinese authorities last week urged restraint from banks there amid worries that brisk recent loan activity could result in asset bubbles and a slew of bad loans.
“Facing the still-grave domestic and foreign financial environment, large banks should hold on to a … reasonable lending pace and further strengthen credit risk control,” the China Banking Regulatory Commission said.
Among other measures, banks must raise their loan-loss provisions to at least 150 per cent of their bad loans by the end of the year, the banking regulator said in a recent statement posted on its website.
Lenders must also ensure their capital adequacy ratios, which have been set at a minimum 8 per cent, do not fall, according to the statement.
The lending spree has fuelled concerns that money was being funnelled into stock and property investments instead of the real economy, raising the risk of asset bubbles and bad loans.
Worries had been growing that Beijing was looking to begin restricting lending.
But economists have said authorities were unlikely to rush into tightening credit conditions before the end of 2009.
There are those locally who struggle to believe the optimism of the markets.
National Australia Bank and Woodside Petroleum chairman Michael Chaney is one who holds a little back.
“I am relatively optimistic that the worst is behind us,” Mr Chaney said.
“I have thought for a while that if the rest of the world doesn’t recover significantly how long can China keep up its stimulus?”
“Its exports need to be expanding.”
Speaking at a WA Business News Success & Leadership event last week, Azure Capital founder Mark Barnaba admitted to be hesitant about the 12-month turnaround.
“I do worry about the complete juxtaposition about where confidence was 12 months ago and where it is today,” Mr Banaba said.
“I do think the fundamentals are lagging the confidence somewhat.
“Clearly, from an economic point of view we are out of the woods in terms of a complete melt down in financial systems.”
“(But) there are still lots of balance sheets …that need to be repaired.”