WA Business News' fourth annual State Economic Review comes at a time when the world economic system is facing its greatest challenge for decades.
WA Business News' fourth annual State Economic Review comes at a time when the world economic system is facing its greatest challenge for decades.
The global credit crunch has sent share markets on a rollercoaster ride, with the All Ordinaries index this week about 41 per cent lower than its November 2007 peak.
The Australian dollar has also taken a battering, sitting around US70 cents, down 28 per cent from its July highs.
The collateral damage has already extended to Western Australian business. Credit has become harder to obtain, and consumer confidence and spending have weakened.
While there is general agreement that WA should remain relatively sheltered from the worst of the global financial turmoil, the state will not completely avoid the fall-out.
After years of stellar growth, driven by the resources boom and strong demand from China, the WA economy will undoubtedly undergo some form of correction as the global economy goes through a downturn.
The Chamber of Commerce and Industry WA says the economic outlook for WA remains up-beat, despite mounting concerns over the global economic outlook.
It expects conditions in WA to remain strong, forecasting the state's economy to grow by 5.5 per cent in 2008-09 and 6.25 per cent thereafter.
But the most critical question for the WA economy is to what extent will China be able to sustain its strong growth?
Economists expect the Chinese economy to remain resilient, with annual growth of between 8-9 per cent.
The latest economic data shows China grew solidly in the September quarter, with gross domestic product expanding by 9 per cent for the year, despite the shutdown during the Olympics.
That compares with GDP growth of 10.6 per cent in the first quarter and 10.1 per cent in the second quarter.
Retail sales in China grew at close to the fastest pace in a decade, on the back of sustained income growth.
Industrial output expanded by a less than expected 11.4 per cent in the year to September, down from 12.8 per cent in the year to August.
There is the likelihood that growth in China's manufacturing industry may take a hit as foreign orders begin to dry up.
The uncertainty has already flowed through to some of the state's biggest exporters to China, the iron ore miners, with signs they are adopting a more cautious approach to forward planning.
Rio Tinto Ltd chief executive Tom Albanese said the company would review its divestment strategy, near-term spending timelines and project costs of its capital expenditure program.
Rio Tinto Iron Ore chief executive Sam Walsh added that a number of smaller steel mills in China were reviewing production amid the turmoil in financial markets and weakening steel demand.
But he believes the fundamentals of the Chinese steel market remain sound.
Iron ore junior Mt Gibson Iron Ltd says it has received requests from some of its customers to delay shipments during the second quarter of the 2009 financial year.
On the other hand, companies such as Fortescue Metals Group Ltd say they have received no indication that sales will be challenged in any way.
Access Economics director Ric Simes believes WA will be insulated from the full impact of the financial crisis to some extent, but it won't be completely immune.
"I think [WA's] had such strong stimulus coming through from China...there's no way that level of stimulus was going to be sustainable indefinitely," Mr Simes said.
"It will come down to more realistic levels, from a long-term perspective."
National Australia Bank chief economist Alan Oster said the combination of lower commodity prices, sliding equity markets and a fall in house prices would mean lower growth.
"Outside of mining and farming, other industries don't grow much in times like this," Mr Oster said.
"Mining helps [WA], but outside of that everything starts to slow down quite a lot."
Mr Oster forecasts the national unemployment rate to grow from 4.5 per cent to about 6 per cent by the end of next year, with WA's unemployment rate to rise from 3 per cent to 5 per cent.
He added while growth in China had slowed, the outlook for China's domestic demand remained strong.
"You don't want to panic on China. You'll still get demand for commodities, but not at the prices you used to get," Mr Oster said.
And while it's easy to paint a doom and gloom picture of the economy, the fundamentals don't wholly support those views.
CommSec chief equities economist Craig James believes the real risk for Australia is that the hysterical talk of job losses and recession could become self-fulfilling.
CommSec expects a modest lift in the jobless rate to around 5 per cent, a similar result to the economic slowdowns experienced in 1986,1996 and 2001.
"In an environment characterised by fear and uncertainty, what is required is well-justified and reasoned analysis," Mr James said.
"The rhetoric of recession is actually far different from the reality because Australia's economic fundamentals are just so positive."
