WA at risk of following Asian slowdown

The iron ore price will be a leading indicator of Western Australia's economic health as the risk of a slump continues to rise, a leading economic forecaster has warned.

In its Business Outlook report for the September quarter, Access Economics warns that while a risk of a "shakeout" of the state's economy is rising, it is unlikely to become evident in the next 12 months.

The risk of a slump stems from the slowdown in China - and in a lesser part India - where WA is largely reliant on feeding its resources to.

Access Economics director Chris Richardson told ABC radio that spot steel prices were at US$1,200 a tonne in July, but had slumped to US$255 a tonne.

"The risks for China are rising, meaning that the risks to State incomes are also rising," Access said in its report.

"Both China and India have already seen their growth slow, and expectations continue to slide.

".. if China cools enough, WA might get not merely a cold but flirt with Asian flu."

While the comments sound ominous, Access said the state is expected to earn more than $30 billion in iron ore exports alone, contributing to a sixth of the entire WA economy.

"We estimate growth is still accelerating rather than slowing down," Access said.

It forecasts WA's gross state product to increase 5.2 per cent in the 2009 financial year to $140.3 billion, up from the previous year's forecast of $133.3 billion.

It expects the rate of increase in gross state product to dramatically slow down in fiscal 2012, where it forecasts a 3.8 per cent increase to $161.8 billion.

The state as a share of Australian output is projected to be 13.3 per cent this financial year and rise slightly to 13.5 per cent the following year.

Meanwhile good early rain lead Access to indicate WA will see better wheat crops that last year while retail sales are starting to pick up, growing faster than the national average, following signs of a recovery.

Forward indicators for the pace of housing construction in the state remain modest as approvals for construction tail off while prices remain stalled.

The forecaster said engineering construction work is "massive" mainly driven by a string of gas projects including the $11.2 billion Pluto project and the $2.5 billion fifth train at the North West Shelf.

Meantime the unemployment rate will continue to remain low with Access forecasting a jobless rate of 3.6 for fiscal 2009 before it creeps up to 3.9 per cent in 2013.

Inflation will peak in the 2009 financial year at 4.9 per cent before dropping to 2.9 per cent in the following year.