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Slowing China and trade wars put WA’s economic recovery at risk

The risk of an all-out trade war looms large over the global economy and West Australians should be concerned. WA’s exposure to global forces could put the State’s economic recovery on even shakier ground, with threats of trade wars and a slowing China to hurt WA more than any other state.

The Chamber of Commerce and Industry WA’s (CCI) biannual forecast for the WA economy, Outlook, outlines how we believe the economy will perform over the next three years.

China’s fundamentals remain strong, with slack in its economy continuing to be addressed through Government measures, including public spending on infrastructure. However, the WA economy is more dependent on China than any other Australian state.

Forty-seven per cent of WA’s exports go to China and 53 per cent of our economy is dependent on exports. We rely on free trade for our high standard of living.

Unpredictable protectionist policies and threats of trade wars puts our economic recovery at risk, impacting business sustainability which creates jobs and puts wages in the pockets of workers. There are no winners from lower global trade.

As China’s economic growth slows, so too does demand for WA’s commodities, hindering the State’s economic recovery. Modelling indicates that a 1 per cent change in Chinese GDP growth is associated with a 0.47 per cent change in the value of Australian mining growth. China’s growth has slowed from over 10 per cent in 2010 to 6.6 per cent this year.

The WA economy is showing signs of improvement, but we now expect a bumpier road to recovery. Consumers are more confident about the future of the economy but continue to report a difficult economic climate. Businesses are also more confident but expect a decline in profits in 2019 due to higher costs, including wages and weak demand growth. A further decline in the east coast real estate market could drag on Perth house price recovery, slowing growth in dwelling construction.

Business investment has not experienced the decline we forecast for this year due to new investments and project delays, but that decline is still to come. We forecast business investment to fall by 15 per cent in 2018-19 as the last of the major LNG projects are completed.

Exports will keep the overall WA economy out of recession. We forecast exports to continue to grow this year at 5 per cent then to slow in 2019-20 to 3 per cent on the back of further major resources projects coming on stream. This will support overall growth in the economy of 2.2 per cent in 2018-19. The domestic economy is expected to contract by 1 per cent this year due to slow household consumption growth and declining dwelling investment.

We expect unemployment to weather the storm, declining slightly to 6.0 per cent this year, due partly to new jobs being created. Many people are still leaving the State for the east coast which is keeping the unemployment rate lower than if they had stayed. As unemployment decreases slightly wages are forecast to increase, which we expect will grow by 2.2 per cent the following year.

We approach our forecasts for the WA economy with much caution and conservatism, and this year is certainly no exception.

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