Western Australia’s economic growth is predicted to slow in the coming year, amid slowing growth in China and due to the impact of higher interest rates.
Despite the challenges, CCIWA’s half-yearly Outlook report shows there is cause for optimism, with significant business investment flowing into the state from large-scale resources projects.
The Outlook report predicts global inflation will be brought under control in the short-term, resulting in a likely interest rate cut in Australia later this year.
It forecasts growth in the WA economy will slow to 1.5% this financial year, before lifting slightly to 1.75% in 2024-25, then dipping to 1.25% in 2025-26.
The report finds China’s slow post-Covid economic recovery, weighed down by a faltering property sector, remains a significant risk for WA.
CCIWA Chief Economist, Aaron Morey, said China remains a key watch-point.
“We expect to see China go into a period of lower growth rates rather than any kind of collapse,” he said.
“There are still some areas of strength in China’s economy which play directly to WA’s strengths too –including high steel production which is driving continued strong demand for iron ore.”
The report predicts business investment to grow by 12.75% in 2023-24, driven by several big-ticket resources projects, including Woodside’s Scarborough and Pluto 2 Expansion Project and Perdaman’s Urea Project.
“We expect to see strong growth in imports, driven by an uptick in business investment in WA, and that is expected to detract from the overall growth number,” he said.
“We’re also seeing some of WA’s major iron ore projects operating at close to capacity, and a drop in agricultural exports driven by El Nino weather events after a bumper year in 2022-23.
“So while the outlook is predicting a drop in growth for the overall economy, we expect WA to continue to punch above its weight in the context of global conditions.
“And while overall growth is expected to slow, domestic-driven growth or state final demand is set to remain strong.”
Iron ore demand has helped to offset the collapse in nickel and lithium prices which have plunged in the past 12 months.
“Continued strong business investment and a solid pipeline of major projects are encouraging signs for the longer-term strength of WA’s economy,” Mr Morey said.
“However, we believe ongoing cost pressures, industrial relations reforms and regulatory reforms that delay approval timelines pose an ongoing threat to this growth.”
The report predicts household spending growth to dip, down from 3.5% growth in 2022-23 to 2% in 2023-24, before climbing again to 2.25% in 2024-25.
“Successive interest rate hikes and the soaring cost of living have forced consumers to pull back their spending in the past six months and are still working their way through the economy,” Mr Morey said.
“However, stronger than expected population growth, wage growth and increased property prices should lead to a recovery in spending next year, as inflation eases and predicted rate cuts take effect.”
