THE Western Australian economy has continued to grow over the third quarter of this year, according to the latest Australian national accounts data from the Australian Bureau of Statistics.
State final demand in WA increased by 0.6 per cent over the September quarter, 0.1 percentage points behind New South Wales and Queensland but well ahead of Victoria and South Australia.
These figures are eagerly anticipated by governments, businesses and commentators as an indication of the strength and future direction of the domestic economy.
The main contributor to WA’s economic growth has been a 2 per cent increase in household consumption expenditure over the September quarter – the largest growth of any state or territory in the country.
But while household spending has been the mainstay of WA’s domestic economic activity, growth in business investment in the state looks to have stalled.
Private gross fixed capital formation dropped by 1.7 per cent over the September quarter, with WA the only state to post negative growth over the period.
Other economic data released by the ABS in November provides further evidence the state is experiencing something of a slump in private sector investment.
Business investment has been travelling well in WA, with quarterly capital expenditure rising by nearly a third from $6.1 billion in the March 2019 quarter to $8.3 billion as at June 2022.
The growth in capital investment has been aided by higher rates of construction project completions, a gradual relaxation of supply constraints and the need for businesses to build capacity to respond to rising demand.
But the state’s private capital expenditure dropped by a surprising 7.6 per cent over the quarter to September 2022 and by 4.7 per cent compared with the same quarter last year.
New investment in machinery and equipment dropped by 10.7 per cent over the past quarter, with capital spending on buildings and structures falling to a lesser extent by 5.3 per cent.
The state’s mining sector has delivered growth in private capital expenditure since 2019, but non-mining industries have not been keeping pace.
And there is a general expectation worse is to come in 2023. Investment decisions are built on confidence, and these latest falls suggest confidence among WA businesses may be starting to erode because of rising interest rates, economic uncertainty and the continued upward pressure on prices.
Reserve Bank governor Philip Lowe announced another quarter of a percentage point rise in interest rates at the December meeting, the eighth of the year.
This takes Australia’s cash rate to 3.1 per cent at the end of a year that started with the interest rate at only 0.1 per cent.
The state’s economic resilience has been largely a result of the continued growth in household spending since the onset of the COVID pandemic.
But 2023 will bring stronger economic headwinds, with many commentators projecting a contraction in economic activity in the year to come.
There is a limit to the number of times WA can draw from the household spending well to support its economy.
• Professor Alan Duncan is director of the Bankwest Curtin Economics Centre
