01/10/2009 - 00:00

Time to focus on the real economy

01/10/2009 - 00:00


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Financial markets are important but can sometimes get too much attention.

Time to focus on the real economy

THE past week has seen a flood of commentary and analysis focusing on the state of global financial markets and trends in interest rates.

It is important for business owners and managers to stay abreast of these issues but sometimes it seems to be at the expense of focusing on developments and opportunities in the real economy.

Reserve Bank governor Glenn Stevens' recent appearance before a parliamentary committee was the latest prompt for lengthy financial analysis.

He raised the prospect that interest rates may have to be increased.

That is obviously bad news for households and businesses carrying large amounts of debt - but good news for the many retirees and other people who have paid off their home and are net investors.

But ask the question: why is the Reserve looking to lift interest rates again, just one year after the onset of the global financial crisis?

Fundamentally it is because the outlook for economic growth is strong.

That is especially the case in Western Australia, where we have enjoyed some remarkably positive economic news.

This week's cover feature is a case in point.

It records the strong growth in WA exports during 2008-09, which was the low point of the global financial crisis.

The growth was widespread, but was led by iron ore, petroleum and agriculture.

WA now accounts for an extraordinary 38 per cent of the nation's exports and there is every chance that proportion will increase.

Tracking spending on major projects provides an antidote to pessimists who fret over the fall-out from the instability in financial markets.

The value of major capital investment projects under construction or planned in WA just keeps on growing.

We've all read a lot recently about Chevron's Gorgon liquefied natural gas project, which involves an up-front investment of $43 billion over several years.

That adds to the multi-billion dollar investments underway at Woodside's Pluto gas project, BHP Billiton's Pilbara iron ore developments and CITIC Pacific's iron ore mine just south of Karratha.

Gindalbie Metals' Karara iron ore development in the Mid West will add to the surge in activity.

As we've written before, it is hard to appreciate the magnitude of these developments unless they are witnessed first-hand, especially at the epicentre of the boom that is Karratha.

The general public may also struggle to comprehend their significance because the numbers are so mind bogglingly big.

Rest assured, this investment creates huge opportunities for local industry.

At the same time, supply side constraints provide some of the biggest challenges facing industry in WA.

Economic infrastructure like ports and railways will struggle to cope with the increased demand.

Social infrastructure like housing is also a big problem, especially in the state's north.

The big resources companies like BHP Billiton and Fortescue Metals Group need to keep on investing in housing and other social infrastructure to support the longer term development of the region.

This will never replace fly-in fly-out operations which are a fact of life, and indeed are welcomed by many people.

However the state needs to pursue balanced development.

It also needs to ensure there is sufficient supply of skilled labour to cope with the looming increase in demand.

Increased training of Australian workers will help, but the country discovered one year ago the limits on local labour supplies.

Australia reached full employment, and possibly went beyond it as businesses took on staff, or promoted staff, to levels they were not comfortable with.

Skilled migration needs to be a major part of the solution to addressing labour market needs.

Migration programs need to develop so they can be flexible and adaptable to changing industry requirements, not set in stone as they had been for many years.


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