The resource-rich Western Australian economy has grown to almost four times its size since May 2000, far outstripping markets in Australia, the US, Britain and Japan.
Deloitte reports this week that its Deloitte WA Index – which looks at the state’s stocks and indices – fell 5.7% in the last month, contributing to a 10.9% fall in the past year.
Despite the recent fall, the index is still up 295.1% since its inception in May 2000.
For comparison, the ASX All Ordinaries grew 15.5% in the year, while the US S&P 500, FTSE 100 and Nikkei grew 20.9%, 11.5% and 54.1% respectively.
Deloitte noted that the WA market was suffering from falling iron ore and base metal prices, with Fortescue and Atlas Iron losing $6.1 billion and $1.2 billion from their respective market capitalisation in the past 12 months.
But Deloitte lead partner Andrew Annand and partner Matt Judlins denied that WA was in a “technical recession”, describing the state instead as an “economy in transition”.
Here’s what they said:
The WA economy is in transition and the next 12 months will be pivotal in the transition from construction boom to property boom.
[A technical recession] would require a far greater downturn; iron ore prices would have to drop significantly lower than where they are now, and not only would proposed mining projects need to be cancelled but some of the already committed projects would need to be mothballed. This is unlikely to occur.
More likely is that the committed pipeline will continue to support the WA economy, albeit many as-yet unfunded projects will not proceed and business investment will no longer be the growth engine that it was.
While the construction peak may have passed, the current 15% contribution of business investment to the Australian economy is still well above the historical 7-8% seen through the 1980s and 1990s.
Deloitte expects the gap in WA’s two-speed economy to close, with a low AUD boosting tourism, education, home building and renovation sectors while retail, mining and construction sectors slow.
“While it’s not all doom and gloom we are likely in for a bumpy ride over the next year or so as the transition plays out,” the consultants warn.