As the global economy "teeters on a knife edge", Western Australia is well positioned to withstand a possible worldwide recession, according to the Chamber of Commerce and Industry WA (CCIWA).
The CCIWA has released its economic outlook report for this financial year and the next two, warning of a tough year ahead.
"The household sector in particular [will face challenges] with rising interest rates, increased costs of living. But we look beyond those challenges," chief economist Aaron Morey said.
"The fundamentals of the Western Australian economy are incredibly sound, and we should all have confidence in the future of our state."
The CCIWA report stated that during the past year, consumers and businesses have struggled with the rising cost of living as a result of inflation, describing it as the most “pressing challenge facing the world economy.”
It cited supply chain disruptions resulting from COVID and Russia’s invasion of Ukraine as the main factors contributing to high inflation.
In WA, inflation reached 8.3 per cent in December 2022, however, Mr Morey said there are signs that it appears to have peaked, with the easing of some global supply chain issues.
"We certainly do think that inflation has peaked," he said.
"We've probably got another interest rate rise or two left to go, unfortunately."
Key forecasts
CCIWA forecasts that WA's domestic economy is on track to grow 3.5 per cent this financial year, compared to 5.6 per cent last year.
Perth’s CPI is expected to hit 6.5 per cent this financial year, before easing gradually and returning to the Reserve Bank of Australia’s target inflation rate of 2.75 per cent in 2024-25.
WA’s business investment is also set to remain strong and drive the state’s economic growth over the coming years.
Major LNG projects, such as Woodside’s Scarborough and Pluto 2 extension, are expected to ramp up investment this year, along with a number of newly announced projects in the resources and agricultural sectors.
The report also highlighted that the transition to sustainable energy and electric vehicles will increase investment in the growing critical minerals sectors.
This is expected to result in a growth of 4 per cent in business investment this financial year and 9 per cent in 2023-24.
However, despite signs that many of the issues ailing the global economy are set to abate, the CCIWA warned the state will still face a challenging 12 months ahead.
Households to feel the pinch
The outlook report found WA household consumption has remained “extremely resilient” to start this financial year.
“Looking ahead though is a different story, with early signs that consumption is set to ease,” the report stated.
It found rising cost of living and surging interest rates will “force households to tighten their belts” and dampen consumer spending growth to 3 per cent this financial year, an easing of 2.6 per cent since last year.
That will slow even further in 2023-24 to 0.75 per cent.
Meanwhile dwelling investments are also expected to fall by 1.75 per cent, before accelerating to 8 per cent in the next financial year, as issues within the construction sector begin to ease.
The report found WA’s construction pipeline has continued to blow out over the past six months, following a surge of residential building approvals.
However, due to factors such as labour shortages, rapid cost escalation and rising interest rates, both construction businesses and prospective home owners have faced significant challenges during the past year.
“This has led to an increase in reports of contract cancellations, while construction businesses have seen a sharp decline in profits, stifling the ability for many to bid for new work and in some cases leading to insolvency,” the report stated.
The report found WA’s job market remains one of the strongest in the country, with it being the only state with more job vacancies than unemployed people.
WA’s current unemployment rate of 3.6 per cent is also the third lowest in Australia, but that’s expected to rise to four per cent in 2023-24 as the economy begins to slow.
