The global economy is officially in a “dangerous phase” yet Western Australia’s unique circumstances provide cause for cautious optimism.
The mood at last weekend’s World Bank meeting in New York was dire. Finance ministers from the major industrial countries were told the world economy was in a “dangerous phase” as they sought to deal with unresolved economic and financial problems.
The possibility of Greece defaulting on its debts is the most immediate threat to the international financial system but the real problems run far deeper and wider.
Much of Europe is facing financial stress and the United States has yet to properly deal with the after effects of the debt binge before the global financial crisis.
That makes it perverse that investors have reacted to uncertainty by buying US treasury bonds; that can only be explained by their liquidity. In other words, there will always be a market for selling treasury bonds, even in the worst of circumstances.
Against this backdrop, the World Bank’s sister body, the International Monetary Fund, said in Washington it had agreed to act decisively and collectively “to restore confidence and financial stability, and rekindle global growth”.
The European Union also pledged over the weekend to “do whatever is necessary to resolve the euro-area sovereign debt crisis and ensure the financial stability of the euro-area as a whole and its member states”.
Australian treasurer Wayne Swan acknowledged the economic problems in Europe and the United States would affect Australia and the Asian region.
“There’s no doubt that recent events ... impact on global growth. That flows through to domestic growth, that flows through to budget revenues, and that does have an impact,” Mr Swan said.
And yet, despite all of that, Chevron and its joint venture partners – Apache Energy, Kuwait’s Kufpec and Shell – announced in Perth this week they were proceeding with a $29 billion investment in the Wheatstone gas project.
That is on top of the $43 billion Gorgon gas development, also operated by Chevron, and several multi-billion dollar iron ore projects in the Pilbara and Mid West.
The sustained high volume of investment in the resources sector adds another facet to the concept of a two-speed economy.
The mining industry and the mining services sector are very buoyant, at a time when many other sectors, like retail, tourism and housing, are weak.
Equally, the Asian region is very buoyant, at a time when large parts of the global economy are looking increasingly frail.
That was very apparent at the Wheatstone announcement, where speakers highlighted the growing demand for clean and safe energy in the Asian region.
Chevron deputy chairman George Kirkland said world energy demand was predicted to increase by 40 per cent by the year 2030; Asia would account for 60 per cent of the total growth.
Federal Resources Minister Martin Ferguson cited the International Energy Agency, which has predicted that Asia would be the driving force behind a 55 per cent rise in global natural gas demand by 2035.
Mr Kirkland said an added boost had come from the Fukushima nuclear accident in Japan.
“Everything that has happened in the past six months including the terrible Fukushima incident has only reinforced our view that … LNG demand is going to be higher,” he said this week.
Mr Kirkland’s upbeat assessment is matched by mining companies that are racing to expand their production capacity, particularly those in the iron ore and coal sectors, which feed directly into China’s surging steel industry.
Some analysts fear that China’s sustained high growth is not sustainable, particularly when much of the western world is at risk of a financial crisis, yet the majority view (reflected in the guest column on the facing page) is that China’s growth story will be resilient.
It would be dangerous to assume that Western Australia will sail through troubled economic times without any worries.
But equally, it would be a lost opportunity if angst over the troubled eurozone and the political impasse in Washington discouraged WA businesses from pursuing growth opportunities in their own backyard.