2012-13 Government Mid-year Financial Projections Statement

The Western Australian EconomyWage growth is forecast to moderate slightly to 4.25% in 2013-14 and remain steady atthis rate over the remaining outyears, in line with trend growth. This is consistent with asoftening in labour demand, and a slightly higher unemployment rate.InflationConsumer Price IndexRisksPerth’s Consumer Price Index (CPI) increased by a moderate 2.2% in 2011-12, followinggrowth of 2.8% in 2010-11. The subdued growth in 2011-12 was consistent with aneasing in inflationary pressures at the national level over the past year.Consumer prices in Perth are forecast to rise by 3.25% in 2012-13 (compared to the2012-13 Budget estimate of 3.5%), reflecting the introduction of the carbon tax,above-average population growth and reasonably strong wage growth.Perth’s CPI is forecast to grow by around 3.0% in the outyears (slightly lower than thebudget forecast of 3.25%). Growth in 2015-16 incorporates an estimated 0.2 percentagepoint increase to reflect the planned introduction of an Emissions Trading Scheme.These forecasts are broadly consistent with the Reserve Bank of Australia’s latestprojections for headline inflation at the national level (including the estimated carbon taximpact).Global RisksDownside risks to global growth have become more elevated over the past year, reflectinguncertainty surrounding the policy responses to the economic challenges faced by theUnited States and the euro area. Prospects for the euro area remain dependent ondecisions regarding a banking union, recapitalisation of banks, structural reform and fiscaladjustment. Policy uncertainty also remains a key risk in the United States, with a fragilerecovery now being supported by a third round of quantitative easing.Bond yields in the euro area have broadly eased since the middle of 2012. Investors’concerns appear to have been allayed, at least temporarily, by the European CentralBank’s preparedness to intervene in credit markets. Nonetheless, little progress has beenmade towards a long term solution for the sovereign debt problems faced by theseeconomies, leaving the euro area susceptible to ongoing volatility.The implications of these global risks for Western Australia will largely be determined bygrowth prospects in China and uncertainty in local and regional financial markets.67