WA – Keep calm and carry on

With the novel Coronavirus Pandemic sweeping the world, WA is the ‘Number One’ best place to be during this crisis. Our isolation from the rest of Australia and Australia being an island country gives us many advantages to fight COVID-19 effectively.

But that is just one battle and one we will win. The other is our economy and again, WA is in an enviable position worldwide – and one where experts have already stated that WA is likely to be the ‘first’ country in the world to economically recover due to our resource sector.

According to a report in The Australian, Iron ore is forecast to be the first Australian commodity to hit $100 billion in export earnings in a year and Australia could see a 28% annual lift in iron ore earnings in 2019- 20 reaching $101 billion.

ASX miners BHP Group Ltd and Fortescue Metals Group Limited are among those set to benefit from the boom. In the long term, it is predicted that exports could come close to 1 billion tonne level by 2024-25, with China as Australia’s biggest commodity buyer.

Another area of strength for Australia [Western Australia] is that our country is set to overtake China as the world’s biggest gold producer in 2021 as high prices boost production and gold exports forecast to soar. This commodity will be attractive to investors as interest rates fall even lower. Precious metal prices have increased markedly since January benefiting ASX gold miners such as Northern Star Resources Ltd, Newcrest Mining Limited and St Barbara Ltd.

According to the Deloitte WA Economic Outlook published in March 2020 entitled ‘Keep calm and carry on’, as Australia’s most export-oriented state, WA will feel the impact of any prolonged economic weakness in China, however, if China responds to the outbreak with an expected multibillion-dollar stimulus package involving significant capital investment then WA exporters could benefit from a jump in demand.

More than half of WA’s exports go to China, of which iron ore makes up more than 80 per cent. WA businesses also rely heavily on machinery and manufactured parts imported from China for domestic production.

Other good news for WA is that before the virus outbreak, WA’s domestic economy appeared to be gaining momentum. WA state final demand grew 1.7 per cent over the year to December 2019, the highest year-on-year growth in more than five years.

Much of that improvement is

WA is likely to be the ‘first’ country in the world to economically recover

attributable to public transport and road infrastructure projects that have gradually moved closer to commencing construction. The METRONET program tops the list, led by its cornerstone Morley Ellenbrook Greenfield rail project, together with a series of major road upgrades including the Bunbury Outer Ring Road and Mitchell Freeway extension to Romeo Road.

Although the boom-time fervor is firmly in the past, the resources sector is still the source of around two-thirds of WA’s investment project pipeline. In the near term, that activity will be centred around replacement investment by the iron ore majors to sustain production levels: Rio’s $3.8bn Koodaideri, BHP’s $4.6bn South Flank, and Fortescue’s $1.8bn Eliwana and its $3.8bn Iron Bridge projects.

Towards the less certain end of the spectrum, there is $55bn worth of potential investment activity in LNG, including Woodside’s Scarborough and Browse projects and a potential fourth LNG train at Chevron’s Gorgon.

The WA State Budget is also in a strong position, fuelled by windfall iron ore royalties with $10 billion in cumulative surpluses forecast over the four years to 2022-23. That means the WA Government has plenty of fiscal firepower should additional economic stimulus be required in response to coronavirus.

In 2019, WA exported $96 billion worth of goods to China, representing 53% of the total value of the State’s exports. In contrast, China was the destination for just 27% of exports by value from the rest of Australia.

The report shines a light on the need for Western Australia to diversify our export base, over time.

In contrast to China’s significance as an export market, it represents a much smaller share of WA’s imported goods. In 2019, the State imported $2bn worth of machinery and transport equipment, $1.1bn in manufactured inputs and $790m in chemicals and fuels, collectively representing 73% of the total value of imports from China.

Deloitte Access Economics’ latest Investment Monitor recorded an increase in the total value of WA’s infrastructure pipeline for the first time in nine years. Investment projects totalling $157 billion were recorded in WA in December 2019, a 28% increase on the value of the pipeline from the previous December. That still represents a significant decline on the $288 billion peak in 2012 – when megaprojects such as Gorgon were still under construction – but the recent uptick is most welcome.