WA green shoots could be mowed by trade wars and slowing China
WA's economic recovery is threatened by China's slowing economy and an all out global trade war, WA's peak business body says.
The Chamber of Commerce and Industry WA’s released its biannual WA economic forecast Outlook on Friday, which warns WA's reliance on China puts it more at risk than any other state.
Chamber chief economist Rick Newnham said the WA economy is showing signs of improvement, but it could now expect a bumpier road to recovery.
"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," he said.
"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.
Mr Newnham said 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," he said.
"A further decline in the east coast real estate market could drag on Perth house price recovery, slowing growth in dwelling construction."
He said while business investment had not experienced the forecast decline this year due to new investments and project delays, decline was still to come.
"We forecast business investment to fall by 15 per cent in 2018-19 as the last of the major liquefied natural gas projects are completed," he said.
"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."
The chamber expected unemployment to decline slightly to 6 per cent this year and wages to slightly increase by 2.2 per cent.
Mr Newnham said unemployment was being helped by the exodus from WA to the east, which was keeping the rate down.
The report warned if a tariff war resumed, it would reduce Chinese and US exports, which would reduce economic activity and demand for commodities.