Page last updated at 00:05 GMT, Tuesday, 17 February 2009

Western Australia hit by global recession

By Phil Mercer
Perth, Australia

Port facilities
Western Australia relies on trade with the rest of the world

The engine room of Australia's economy is showing worrying signs of slipping into reverse.

Corporate leaders and trade unions in the resources-rich West report a collapse in business and consumer confidence amid the international slowdown.

Major mining projects in Western Australia (WA) have been shelved with the loss of thousands of jobs as the boom state feels the financial chill brought on by a slump in demand from key markets such as China.

"People have been surprised at how quickly the global situation has started to come home to us in Western Australia," says Simone McGurk, assistant secretary of Unions WA.

"The unemployment figures nationally have gone up slightly to 4.5%.

"In WA we're still going okay at 2.8% and we're the lowest in the country, but people are very nervous about what's going to happen and how the resource sector is going to be impacted."

Tough changes

Simone McGurk
In Western Australia we lead a very charmed existence
Simone McGurk, assistant secretary of Unions WA

Mining king BHP Billiton is to cut more than 3,000 jobs in Australia and a major nickel mine will close.

And further redundancies are expected as a once mighty industry faces what is likely to be more downward pressure on commodity prices and demand.

"This is a whole generation of workers, particularly in the resources sector, who are astounded," Ms McGurk says, insisting that few had given the possibility a thought until it actually happened.

"In Western Australia we lead a very charmed existence," she says.

"It's not only our coastline and our weather, but we have enormous natural resources that we've been able to exploit.

"The challenge for our government is to make sure that the community can withstand these changes."

Long-term prospects good

A very warm summer has sent the people of Perth hurrying to the beaches.

Ernst Weber
If China pulls through then the Western Australian economy will be fine
Professor Ernst Weber, University of Western Australia

But beneath the city's relaxed exterior, it is far from business as usual in this isolated corner of the Australian continent.

Corporate confidence in Western Australia is at its lowest level in a decade, according to a survey by the Commonwealth Bank and the Chamber of Commerce and Industry of Western Australia (CCI).

"I think there is an understandably, but, I don't believe, justified level of concern bordering on panic," says CCI chief executive James Pearson.

Mr Pearson says the antidote for such ominous times is low interest rates and taxes, as well as better access to credit and spending on public infrastructure.

"This will be a time when good firms will see an opportunity to batten down the hatches to get through this temporary storm and then be well positioned for the inevitable economic upturn," he says.

"Even though China and India and other emerging economies in Asia are being hit by the global financial crisis, long-term demand will return and the prospects for this state, which is more exposed than any other in Australia to the international economy, are very good."

Depends on China

Senior corporate figures insist Western Australia's mining boom is enduring a "temporary set-back".

Industrial site
Economic activity has slowed down dramatically

Analysts are less optimistic and insist that the good times are over.

Ernst Weber, professor of economics at the University of Western Australia, is predicting that unemployment will rise by up to 2% while house prices in Perth could tumble by a fifth.

"The global financial crisis had not affected Australia very much until the end of last year, but in the past few weeks we've seen a decline in economic activity in Western Australia," he says.

"The losers are naturally the people who get laid off in the mining industry and you will also see a downturn in the housing sector, so construction workers may be more hurt by it."

It could take two or three years before the local economy bounces back, Professor Weber predicts.

"In Western Australia, it really depends on what's happening in Asia and the strength of the Chinese economy and to a lesser degree on the Indian economy," he says.

"If China pulls through then the Western Australian economy will be fine in the next few years."



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