Boom-time conditions are expected to continue in Western Australia for another two years despite the impact of Covid-19, but experts have warned about the state’s over-reliance on the mining industry.
According to the Chamber of Commerce and Industry WA biannual economic outlook report, the state’s domestic economy is set for 3.75 per cent growth in 2021-22, which is well ahead of pre-pandemic levels.
The ongoing threat of Omicron — which is tipped to peak in WA this month — is expected to have the biggest impact on businesses since the start of the pandemic.
“With WA’s high vaccination rates, lower-density urban sprawl and ongoing baseline Covid-19 restrictions, our central expectation is that Omicron will dent, not derail WA’s strong economic trajectory,” the report read.
However, the looming prospect of interest rate rises is predicted to drag confidence and spending.
“Businesses face delays and rising cost pressures, including for energy, and we must prepare for commodity markets to one day turn,” CCIWA chief economic Aaron Morey said.
“Mining has reached a record 47 per cent shaxjmtzywre of WA’s economy — an over-reliance, which demands significant refocus on diversification.”
Iron ore made up most of WA’s mining firepower last year, but lower borrowing costs and strong global demand led to huge exploration and investment in other sectors such as gold, copper and lithium.
Strong commodity prices and new projects are expected to result in business investment going up from two per cent this year to 7.5 per cent in 2022-23.
“With the state government’s management of Covid-19, mining and consumer activity has continued comparatively freely, enabling the benefits to flow through the economy,” Mr Morey said.
Household consumption is expected to hit 2.75 per cent, while dwelling investment will lift to 10 per cent.
Despite Premier Mark McGowan copping some criticism over his hard border stance, CCIWA said the state’s lower levels of restrictions had enabled households to spend their savings, ensured the mining industry operated without disruption and supported intrastate travel.
Travel funds redirected to the regions added up to $6bn to the economy, CCIWA noted.
However, the hard border also led to labour shortages and CCIWA expected the issue to persist for some time even now that the border has reopened.
“Solving WA’s labour crisis won’t be a quick fix,” the report read.
CCIWA further warned the war in Ukraine had underpinned a rise in energy prices everywhere, which “if sustained for any length of time will act as a material headwind to global growth”.
Three key recommendations from CCIWA:
- Reform inefficient taxes constraining diversification, such as payroll tax and stamp duty;
- Reducing disincentives to working parents; and
- Rebuilding WA’s reputation as a place to study, travel, invest and do business.
