WA has certainly become the ‘state of excitement’, as a result of its remarkable growth record in recent years.
Western Australia has certainly become the ‘state of excitement’, as a result of its remarkable growth record in recent years. The opportunities created by such growth have generated significant wealth for the state – for businesses, governments and the wider community.
The emergence of China has been a major factor behind WA’s recent economic success. China’s rapid economic development has necessitated unprecedented levels of demand for resources, particularly for iron ore, nickel, alumina, petroleum and LNG – all of which are key commodities produced in WA.
This has resulted in strong growth in the state’s export returns, particularly among these key resources. However, as production limits have been reached, this has brought with it a need to expand capacity, both to existing projects and new projects.
During the current six-year investment cycle, the amount invested by WA businesses across all industries has tripled in value. With a $100 billion queue of investment projects waiting to be undertaken, it is likely that this cycle will continue for the foreseeable future.
In the 2006-07 financial year, domestic economic activity in WA expanded by 8.8 per cent – the highest rate of growth of all the states and territories, and around twice the rate of growth recorded nationally.
The domestic economy is now more than 50 per cent larger than it was just six years ago. Such growth is reminiscent of a developing economy, not an advanced economy.
While business investment has been central to WA’s continued economic success, strong growth has also been derived as a result of rising levels of consumer spending and the continued investment in housing.
In 2006-07, more than $24 billion was spent by consumers in WA retailers, increasing by a record 12 per cent from the previous year.
Demand for housing reached fever pitch during 2006, with competition from domestic buyers and investors from all over the world resulting in sharply rising house prices and emerging affordability issues (pictured). While demand has moderated during the last half of the financial year, house prices across the state are still the least affordable in the country.
It is expected that the significant amounts of investment undertaken in the resources sector will deliver further dividends for the state in the form of higher export earnings.
While export-led growth will be a distinguishing feature of WA’s growth profile over the next few years, domestic economic conditions will remain buoyant as the investment boom continues and as strong population growth brings with it higher levels of consumption and housing demand.
The strength of the WA economy has also brought with it extremely tight labour market conditions, punctuated by record levels of labour force participation, historically low levels of unemployment and record job vacancies.
Record numbers of people continue to arrive in WA from overseas and interstate to take advantage of these conditions. It is imperative that high rates of immigration continue over the coming years to top up a rapidly diminishing supply of labour.
Labour and people shortages are now the most pressing issue facing the WA economy. If such acute labour shortages continue, this will not only constrain future economic growth, but also result in undesirable wage and price pressures.
The state’s economic potential is very strong given the positive long-term global outlook. Ensuring that the state has a productive and available workforce will be important if WA is to realise its full potential.
•John Nicolaou is the chief economist for the Chamber of Commerce and Industry of WA.
