Transition phase will cause pain: report

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 22 Apr 2015   Posted by admin


By Jane Goldsmith

April 22, 2015

Deloitte practice leader Matt Judkins

WEAK commodity prices and the shift to production will spell pain for WA’s resources sector this year, a new report has found.

Deloitte Access Economics’ WA Business Outlook report, released in March, said that despite encouraging current growth figures, the state would struggle as the minerals sector transitioned from the construction phase to production.

Medium term economic growth would slow 2.6 per cent in 2014-2015, and private construction would decline 18.1 per cent to $39.2 billion. Construction would drop further to $31.7 billion (19.2 per cent) the following year.

”WA’s great resources-fuelled story is well documented,” Deloitte practice leader Matt Judkins said.

“But the transition from resources investment and construction to exports is going to come with some pain.”

Unemployment would also rise from 4.9 per cent to 6 per cent, despite steady increases in export volumes from increased resources production.

“Strong resources production and exports are great – in fact they are the heroes for WA’s economy,” Mr Judkins said.

“Higher volumes of iron ore exports are expected to drive a 6.4 per cent growth forecast for exports in 2014-15, from both project expansions nearing completion as well as miners achieving greater run rates from targeted productivity and efficiency measures amidst a weaker price environment. And this strong growth is expected to continue through to 2018-19, as the major LNG projects currently under construction reach production phase.

“But exports don’t have the same positive benefits to an economy as an investment-led boom.

“Unwinding resources sector investment, jobs and spending impacts are not as significant and, not surprisingly, private commercial resources construction and its stimulatory impact falls away.”

In its March WA Index, Deloitte reported the market capitalisation of WA-listed companies decreased 2.6 per cent across the month to close at $128.8 billion.

Iron ore and coal suffered the biggest losses, falling 17.8 per cent and 19.9 per cent per cent respectively, followed by crude oil, which fell 10.2 per cent.