The second half of 2020 is expected to be a difficult time for Western Australia as the impact of the COVID-19 pandemic continues to impact on employment and wages.
Deloitte Access Economics says in the May 2020 edition of its WA Economic Outlook that it expects gross state product to contract by about 6 per cent, or about $17bn, in the 2020 financial year.
It noted that April 2020 marked the largest month-on-month reduction in WA employment since records began, with more than 62,300 jobs lost in the state.
Employment is not expected to return to pre-crisis levels until 2024, which is a sign that the economic recovery will be long and slow.
Globally, the International Monetary Fund (IMF) has forecast a decline in real GDP of 3 per cent in 2020, almost twice the contraction observed in 2009 in the wake of the global financial crisis.
“Social distancing restrictions in WA have successfully contained COVID-19, but it has come at an enormous economic cost, wiping out several years’ worth of job gains and industry growth in WA,” Deloitte partner Noel Richards said.
“Over 60,000 jobs were lost in WA in April, with few sectors unscathed.
“The consequences of this for household income and confidence is particularly devastating. And its this negative wealth effect that will work its way through the economy in the second half of 2020.”
Richards added that well thought-out interventions, brave decision-making, good coordination between governments, and between governments and the business community — combined with the will of the community to accept and implement government-led interventions — underpinned the state’s success on the health front.
“The same qualities will see us win the economic battle,” Richards said.
Private construction investment in the state is expected to fall by about $20bn in the next two years, almost double the $11.8bn that Western Australia plans to spend in total as part of its Asset Investment Program during the same period.
“In other words, the state government would need to almost double its planned infrastructure spend to offset the decline in private construction activity in the coming two years,” Richards said.
“That’s a tough ask for the state when many of its revenue sources are shrinking.”
The state’s position as a trading economy presents both risks and opportunities as the falling global demand for energy hits its $35bn gas export sector, though the immediate outlook for the $95bn iron ore sector remains strong.
Benchmark prices for gold, the state’s third largest export earner, also remains at elevated levels.
“This is good news for the resources sector, but also for the state government as it means royalty revenue is staying healthy while other revenue sources will be declining,” he added.
Additionally, the easing of travel restrictions within Western Australia will also help the tourism sector as almost two thirds of the $13.5bn spent in the state was by locals on intrastate travel.
“WA had the highest share of intrastate tourism expenditure of any state or territory in 2019. Our tendency to holiday locally is a big advantage right now,” Richards concluded.