CEO VOICE: WA’s economic recovery on track but interest rate rises could derail the train
The consensus is building that WA is picking itself up, but if inflation leads to interest rate hikes we will be in unfamiliar and dangerous territory.
The mixed feelings were expressed at an Australian Institute of Management WA/WestBusinessCEO Voice roundtable that asked corporate leaders: “Has WA business turned the corner yet?”
Our economic diversity, the perennial booms and busts, resource sector optimism and the risk of high household debt all featured in the discussion chaired by AIM WA chief executive Gary Martin.
ACIL Allen Consulting executive director WA John Nicolaou said slackness in the labour market was slowly being absorbed with lower underemployment, stable unemployment and full-time job creation growing.
“We are on that path towards a sustainable growth path,” he said.
Mr Nicolaou said the boom left WA with a bigger, more broadly based economy and a more sophisticated city.
“I think we are on the cusp of growing again at a more healthy 3 or 4 per cent rate, I just don’t think it’s going to be a 6-7 per cent rate that we saw during the peak,” he said.
Perdaman Group managing director Vikas Rambal strongly believed the State needed more mega-projects.
Mr Nicolaou said he thought that era was gone but investment was returning to the resource sector in the form of expansions of existing projects.
“The mining industry, clearly the dominant industry in the State, has positioned itself really well for the next upswing,” he said.
Multiplex regional managing director WA Chris Palandri said there was plenty of capacity in their market to deliver the new projects.
WesTrac chief executive Jarvas Croome agreed there was ample capacity, for now, but he did not want to see a repeat of the boom-bust cycle.
“We’ve got a real risk here, if we don’t continue to keep our global competitiveness as we come out of this cycle we’ll lose it again, we’re still under wage pressure,” he said.
“There is a window of opportunity for us but we’ve got to make sure we don’t get out of control on inflation.”
Local Government Professionals WA chief executive Candy Choo said we would never get back to 18-year-olds earning six figures on a mine site, as happened 10 years ago.
“We’ve got a real risk here, if we don’t continue to keep our global competitiveness as we come out of this cycle we’ll lose it again, we’re still under wage pressure.”
Ajilon general manager Kelly Van Nelson said the IT sector was growing after being hit by the globalisation of contracts but was seeing pressure on rates.
“Salaries came down the last five years slowly and incrementally year on year, this is the first year we’ve seen that stabilise,” she said.
Economic Regulation Authority chairwoman Nicky Cusworth said WA had always been a multi-speed economy and this was a great strength but the rollercoaster had its downside.
“Socially, the disruption of the big changes can be very, very painful,” she said.
“But economically, if you look on average for WA over say 10 or 15 years, compared to the rest of the economy we actually look stronger.
“Our wages are stronger, our unemployment rates are lower.”
Some leaders saw hurdles in building the non-resource side of the economy. Mr Nicolaou said WA was underweight in the tourism and education sectors compared with the other States.
Motor Trade Association of WA chief executive Stephen Moir said Perth was still a very expensive place to come to on holiday.
Mr Moir was also concerned about skill shortages and called for policy changes to attract more people into vocational training.
Spacecubed managing director Brodie McCulloch said the visa system could create a bottleneck in supplying a surging demand for robotics and engineering skills over the next five to 10 years if the economy does pick up.
Deloitte assurance and advisory lead Leanne Karamfiles said it was important to remember that there were benefits from challenging times.
“When things are going well and the waters are calm it’s very hard to pass competitors, it’s very hard to change your relative position in the pecking order,” she said.
“But when things are troubled, when the waters are really rough there is lot more opportunity.”
WA Museum Foundation director Jenny Allen said she was encouraged when engaging the corporate sector for endowments for the new museum.
“Because it’s about tourism, it’s about jobs, it’s about science, it’s about the future for our kids,” she said.
Despite the green shoots the business leaders are seeing there is one overwhelming concern.
“When things are going well and the waters are calm it’s very hard to pass competitors … w hen things are troubled, when the waters are really rough there is lot more opportunity.”
If the Reserve Bank tries to reign in growth-fuelled inflation with interest rate hikes, highly levered households and businesses unaccustomed to anything but low interest rates will suffer.
Mr Nicolaou said the recent boom had two aspects.
“There was a mining boom, but there was also a population boom and that … created the market for housing,” he said.
Mr Palandri said the greenshoots he saw in construction were in those suburbs that allowed some higher density but any significant rate rise concerned him.
“I don’t think the overall market is ready to adjust to a new norm in interest rates,” he said.
Bell Potter Securities head of wealth management Heather Zampatti said having household debt at 200 per cent of income was staggering.
She expected US rates would rise first which, and if the US dollar strengthened in response, Australia would be more competitive.
Australian rates would need to rise at some point, but not yet.
“This is really the thing I’m watching the most … when the interest rate dial starts to move,” she said.
Telethon Speech and Hearing chief executive Mark Fitzpatrick said if interest rates rose there would be more defaults on mortgages.
Ms Allen said there was a whole realm of social issues the State would need to deal with.
“It’s about health, it’s about mental health, it’s about homelessness,” she said.