Household spending and confidence is leading Western Australia’s domestic economic recovery – good news for local businesses and consumers alike as the State’s economy continues to transition.
This is the call from WA’s peak business body, the Chamber of Commerce and Industry WA (CCI), as we release our biannual forecast for the WA economy, Outlook, outlining how we believe the economy will perform over the next three years.
CCI Chief Economist Rick Newnham said CCI is confidently optimistic about the future, forecasting that the whole state economy will grow by 1.3 per cent this year, up from 0.9 per cent previously forecast, and will continue to improve.
“We put together our forecast for the WA economy piece by piece, gathering information from small to large sized businesses, consumers and job seekers to form a view of the future – and right now that future is looking brighter.
“This will be welcome news for businesses and households which are both showing confidence levels in the WA economy not seen since the resources investment boom,” Mr Newnham said.
“This growth has been driven by household consumption, which has found renewed strength this year, continued export growth and stable business investment.
“Household consumption is currently growing at 1.5 per cent, in annual terms – the fastest growth since December 2014 – approaching $110 billion per year. This is an important indicator of revitalisation in the economy, with household consumption contributing to over 50 per cent of domestic economy activity.
“Cost-of-living pressures and household budget constraints still remain, but discretionary spending is showing signs of life again, particularly on hotels, cafes and restaurants (3.2% growth) and recreation and culture (1.2% growth).
“This reflects CCI’s latest Survey of Consumer Confidence which identified that confidence is at a four-year high, but cost of living factors such as groceries, utilities, and transport continue to be the biggest influence of concern to consumers.”
Western Australia’s falling business investment has now bottomed out, with CCI forecasting a return to growth in 2018-19 of 3 per cent.
“This is a stark difference to two years ago when business investment was falling at its fastest rate since the start of the decade, falling 28 per cent – confirming that the WA economy has now reached a turning point,” Mr Newnham said.
“This is supported by the latest WA Super–CCI Survey of Business Confidence which showed business confidence at its highest level since 2011 on the back of renewed confidence in the mining sector.
“Strong exports are still playing a major role in WA’s reviving economic growth, now contributing just over $120 billion annually, driven by iron ore and LNG, keeping CCI’s 6 per cent growth forecast on track.
“A dollar in exports won’t however flow through to job creation to the same degree as a dollar in business investment, so it is vital that the State Government continues to foster a positive investment climate, which the State Budget has gone a long way toward achieving.
“Job prospects are improving but continue to limit consumer confidence, with the unemployment rate jumping from 5.3 per cent in July 2017 to 6.5 per cent in April 2018. Given this significant increase, CCI has revised its forecast for the unemployment rate in 2017-18 from 5.8 per cent to 6.1 per cent and is now forecasting slightly weaker wages growth (1.5 per cent) and inflation (0.9 per cent).”
To read Outlook, please click here.