W.A. better positioned for tougher conditions ahead

The WA Chamber of Commerce and Industry (WACCI) is more hopeful of a recovery in business investment in the state for the current financial year 2000-2001.

The WACCI's senior economic analyst, Nicky Cusworth, says the optimism is based on interim surveys and discussions with big project management, supported by official data like Australian Bureau of Statistics (ABS) figures which have flagged a recovery in mining investment next year.

 Another key factor is that government spending is likely to be stronger following the success of the Labor Party- in the last months state elections.

based our original forecasts on government projected spending base d on the budget of May 2000 by the time the mid-year economic statement came out in January it WA's clear that government spending WA's going to be a bit higher," said Ms Cusworth.

She stressed that caution WA's necessary when assessing the economic direction in which the state WA's heading, as there WA's just too much uncertainty regarding the international environment. The slow down in the US economy and what effect that might have, particularly on the Asian economies which are WA's biggest export markets needed to be taken into the equation. Ms Cusworth believes that the outcome will be favourable to the state, but says the extent of uncertainty leaves a lot of question

The WACCI provided the following overview of the West Australian economy:

WA is four times larger than France, and more than five times larger than any other European country As the largest state in Australia, it covers a third of the country's land area but contains less than a tenth of its population. Its population density, at an average of one person per 1.4 square kilometres, is amongst the lowest in the world - lower, for instance, than Mongolia.

Much of the states wealth, especially in the primary sectors, is generated in the broad sweep of arable land south and east of Perth, in the northern pastoral areas and from minerals extracted from some of the most inhospitable and remote mine sites in the world.

WA has a significant share of world trade in commodities as diverse as mineral sands, alumina, natural gas, diamonds, wool, iron ore, wheat and gold. These primary sectors have helped to shape the rest of its economy.

WA's manufacturing base is relatively small, partly because domestic demand from a small, remote population has been too low to support major industries. Instead, WA manufacturing comprises a base of heavy industries supporting the minerals sector or using its products, and a fast-growing range of diverse but relatively small producers servicing niche markets at home or overseas.

This has meant that Western Australia's economy is highly trade dependent. In the traded goods sector, most of what it produces it does not use, and much of what it uses it does not produce.

Perth itself is one of the most isolated capital cities in the world.

Its nearest neighbour of any size, the South Australian capital Adelaide, is 2000 kilometres away. Yet, its links with its near Asian neighbours are strong. Perth is in the same time zone as Hong Kong, Malaysia, Singapore and the Philippines, and is closer to Singapore than to Sydney.

In 1999-00, around 61 per cent of WA's exports were destined for the Asian region, with Japan and South Korea as the largest markets.

Minerals and rural products have given WA a strong but sometimes erratic economic base. WA is vulnerable to fluctuations in demand and prices of commodities, typically more volatile than demand and prices for services or manufactured goods.

Over the ten years to 1999~00, Western Australia averaged real economic growth of 4.7 per cent a year, compared with a national average of 3.9 per cent.

WA's share of national Gross 1)ornestic Product (GDP) WA's almost 11 percent in 1999-00.

Over the past ten years, the value of WA exports has increased by air average of 11 per cent annually, from A$10,139 million in 198990 to A$25,428 million in 1999-00.

The value of WA's exports has, risen significantly in two of the last three years. Exports were up 18 per cent in 1997-98, but fell by four per cent in 1998-99 largely due to the Asian economic crisis but recovered strongly by 17 per cent in 1999-00.

Corporate sector investment in WA has also been strong rising from A$4.2 billion in 1991-92 to A$8.7 billion by 1997-98, but it has slumped by a cumulative 45 per cent over the past two years to A$5.3 billion in 1999-00.

In 1999-00, WA accounted for around 12 per cent of Australian corporate sector investment compared with almost 19 per cent of Australian corporate sector investment in 1997-98.

The backdrop for WA's economic activity looks more favourable than it has for years.

Strong world growth and an increase in global trade marked the rapid recovery of global and regional economies from the Asian meltdown of 1997-98 and its aftermath. Strengthening world demand is most evident in those Asian economies which represent a large proportion of WA's export markets.

Strong growth within the national economy has further added to this favourable context.

However, WA's domestic economic activity is patchy, with demand falling in four of the past 10 quarters. Demand growth of 2.5 per cent through the year to June 2000 WA's low compared both to the rest of Australian and to WA's long term trend.

Not all of the domestic economy is weak. Up to June 2000, residential building activity in WA WA's booming, as homebuyers moved to beat the Goods & Services Tax (GST) - induced price rise from July This effect WA's even more pronounced in WA than nationally. But as the GST deadline drew nearer, new approvals fell off sharply.' and the value of building activity is forecast to fall by nearly 20 per cent in 200001, but to stage a strong recovery in 2001-02.

The number of households in WA with a computer has grown strongly over the last few years. In 1998-99, the proportion of WA households with a computer WA's 46.3 per cent - close to the national average of 46.5 per cent.

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