No. 3 - Department of Treasury - The Western Australian Government

2006 No.3 Western Australian Economic SummaryOverviewWestern Australia’s real Gross State Product rose by 4.9% in 2005-06,following growth of 4.7% in 2004-05.Economic growth has been underpinned by strong demand and prices forthe State’s key mineral commodities. This has boosted employment andincomes in the resources sector, and also induced very strong growth incapital expenditure. Western Australia’s real business investment increasedby 37% in 2005-06, and in the past five years business investment hascontributed just over half of the growth in real Gross State Product of 31%,or 5.6% a year (see page 2 for a discussion of GDP growth).The impetus from the resources boom has also fed through to other sectorsof the economy, with most key economic indicators showing morefavourable conditions in Western Australia than nationally. The State’s retailsales and wider consumer spending measures are growing at a faster pacethan nationally, and its consumer and business confidence levels are higher.Western Australia’s housing market is comparatively buoyant, and stronggrowth in house prices in the past three years has raised Perth’s medianhouse price to be second only to Sydney of the State capitals.These robust conditions have produced a very tight labour market.Western Australia has a lower unemployment rate, a higher participationrate and a higher job vacancy rate than nationally, and its wages growth isfaster. Although employment growth is decelerating, this reflects supplyconstraints rather than easing labour demand.These favourable economic conditions do, however, have some negativeconsequences. Skills and labour shortages are contributing to cost overrunsand delays in investment projects and housing construction. Strongly risinghouse prices have provided an equity boost for people who already owntheir own homes, but prospective first-home owners are facing affordabilityat near-record lows. House prices are largely responsible for the0.9 percentage point gap between Perth’s inflation rate of 4.8% in the year toSeptember, and national average inflation of 3.9%.There are some signs that the overheating in some parts of the economy maybe easing. In the housing market, building approvals are trendingdownwards and the backlog of residential building work yet to becompleted appears to have peaked. The real estate industry reports recentincreases in the stock of established houses for sale, and in the average timethat properties are on the market.Average annual growth in household consumption and real retail trade isclose to long run averages, representing a moderation from theabove-average growth rates experienced in 2005-06.Department of Treasury and Finance 1