2012-13 Government Mid-year Financial Projections Statement

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2012-13 Government Mid-year Financial Projections StatementThe slowdown in China’s industrial production translated into softer demand for steel andthus iron ore. To date, the adjustment to the softer demand from China has occurredthrough lower commodity prices, with Western Australia’s export volumes largelyunaffected.Lower iron ore prices contributed to a 1.5% decline in the terms of trade in 2011-12.The terms of trade is forecast to decline by a further 7.25% in 2012-13. However,commodity prices are still at historically high levels.Domestic Economic ActivityHousehold SectorPrivate ConsumptionHousehold consumption grew by a very strong 6.6% in 2011-12, which exceededprevious expectations and was stronger than growth nationally of 3.3%. This reflects theState’s strong population growth and labour market conditions, as well as the highAustralian dollar, which has improved the purchasing power of domestic consumers.Household spending has been supported by strong increases in discretionary componentsof spending such as ‘hotels, cafes and restaurants’, ‘furnishings and householdequipment’, and ‘recreation and culture’.The immediate outlook for household consumption is positive. Growth inWestern Australia’s retail trade turnover in 2012-13 to date has been stronger than itshistorical average, in stark contrast to the weak conditions at the national level.Overall, household consumption is forecast to grow by 5.25% in 2012-13 (up from thebudget forecast of 4.5% growth), supported by low interest rates and above-averagepopulation growth (projected to be 2.8% in 2012-13, compared with long-run averagegrowth of 2.0%). Growth in household consumption is expected to moderate to 4.75% in2013-14 before returning to its long-run average rate of around 4.25% in 2015-16.Housing DemandHousing demand has been subdued in recent years due to the large outstanding stock ofhousehold debt carried over from prior to the global financial crisis.However, partial indicators suggest that underlying demand for housing is improving.Perth rental market conditions are currently tight, the number of building approvals hasincreased (see figure), population growth is strong, and first home buyer activity haspicked up. The ABS established house price index for Perth in the Septemberquarter 2012 was 4.4% higher than its low point in the September quarter 2011,after declining by 4.7% in the previous year.62
The Western Australian EconomyBUILDING APPROVALSWestern Australia, TrendFigure 52,5002,2502,0001,7501,5001,2501,0002002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Source: ABS Catalogue 8731.0.Dwelling investment is forecast to grow by 4.5% in 2012-13 reflecting the expectedimprovement in underlying demand, but this is lower than the 7.5% growth forecast in the2012-13 Budget. Growth is expected to strengthen further in 2013-14 to 7.5% supportedby above-average population and income growth. Over the outyears, growth is projectedto moderate to 4.25%. House prices are expected to increase by 4.7% in 2012-13, andbroadly in line with forecast growth in household incomes across the outyears.Business SectorBusiness investment increased by an exceptionally strong 38.2% in 2011-12 to$68.4 billion, underpinned by a 51.4% increase in non-dwelling construction and a 29.3%increase in machinery and equipment. During 2011-12, Western Australia accounted for41.8% (or $18.9 billion) of the total 22.0% (or $45.2 billion) national increase in businessinvestment.Investment is expected to expand further in 2012-13, supported by continued strongspending on the Gorgon LNG project and increases in spending on other major LNGprojects, such as Wheatstone, Prelude, and Ichthys. The short term outlook for iron oreinvestment also remains robust given much of the spending is already committed.However, new iron ore developments are likely to proceed at a slower rate thanpreviously expected given the recent softening in iron ore prices.63
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2012-13 Government Mid-year Financial Projections Statement

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