China recovery clouds rosier outlook for WA’s economy as population grows and house prices run hot: CCIWA

Fears over the pace of China’s recovery from a prolonged property and consumer slump will weigh on WA’s economic outlook, even as an increase in exports and a growing population offer hopes of modest growth. The Chamber of Commerce and Industry WA is forecasting a slight rise in the State’s number of unemployed to a still-tight 4 per cent over the remainder of the financial year as higher-for-longer interest rates work to bring down inflation. That will trim household spending and dwelling investment as wages also moderate to 3.75 per cent growth this financial year and drop further as the jobless rate ticks higher. Business investment is forecast to grow 2.75 per cent as activity consolidates at current high levels, underpinned by work on major LNG projects and other resources projects, some of which were delayed. The chamber’s half-year economic outlook report, to be released Monday, is tipping WA’s economy will grow a “solid” 2.5 per cent over the year, and 2.25 per cent over the following years out to 2026-27. CCIWA chief economist Aaron Morey said the outlook was positive but there would likely be a slowdown in momentum. “Households continue to feel the pinch of higher living costs which will weigh on spending, while business investment is expected to consolidate at higher levels,” he said. “However, improved export outlooks for iron ore and agriculture and solid population growth should help sustain economic activity over the next 12 months.” Household consumption was above the chamber’s previous forecast for last financial year as wages caught up with soaring inflation and a tight market lit a fire under Perth property prices. But the chamber expects it to cool to just 2 per cent this financial year. Further strong population growth — which is likely to take WA over the three million mark “very soon”, according to Premier Roger Cook — should maintain baseline consumption levels even as some families tighten their belts. The report is forecasting inflation in WA to ease to 3.25 per cent this financial year and fall to 2.75 per cent by 2026-27. It does not expect the Reserve Bank to make a move to lower rates until at least February next year. And in more bad new for homebuyers, strong migration is expected to drive house prices even higher as builders struggle to keep pace with unprecedented demand for new builds. “We expect the housing market to remain very tight in the medium term, with dwelling investment to rise by 3.75 per cent in 2024-25 and 5.5 per cent in 2025-26 as current supply constraints begin to ease,” Mr Morey said. “Dwelling approvals have risen by 58.9 per cent since June last year and there are more than 25,000 homes sitting in the pipeline, but supply-side constraints like high construction costs and skills shortages will continue to be a drag on the delivery of new homes.” While there were “clear concerns” a waning Chinese property market had curbed demand for WA iron ore and forced prices for the steel-making ingredient below $US100 a tonne, Mr Morey said the chamber remained upbeat on the Middle Kingdom’s economic prospects as it moves towards lower but “more sustainable” growth rates. That long-term optimism for WA’s powerhouse commodity — vital to filling both WA and Federal government coffers — stems from an expected demand for steel that the chamber says will be necessary to build out transmission infrastructure for the global clean energy transition. But Mr Morey sounded a warning over further global economic protectionism, pointing to the possible re-election of US presidential candidate Donald Trump, who is set to wage a new tariff war against China if he is returned to the White House at the November election. “Globally, protectionism is on the rise, with more countries seeking to onshore or ‘friend-shore’ their supply chains,” he said. “The number of trade restrictions has surged over recent years, with more than five times as many restrictions in place today compared to 2015. “This growing geoeconomic fragmentation could further constrain trade, leading to weaker growth and the potential for higher and more volatile prices.” Report editor, senior economist Sam Collins, also used the forecasts to reignited the chamber’s long-running campaign to cut WA’s payroll tax burden and renew its opposition to a raft of new and highly contentious Federal Government reforms. “To ensure the slowdown does not become entrenched, we must be prepared to adopt policies that encourage the necessary investment to achieve this potential,” Mr Collins wrote. “This should start with creating a more competitive payroll tax system to better align WA with other States and ensuring the Federal Government’s highly damaging Nature Positive agenda does not compromise WA’s future. “These efforts will be critical, especially considering the recent industrial relations reforms that will negatively impact our competitiveness and attractiveness as an investment destination.”