BCEC Quarterly Economic Commentary – November 2020
This Western Australia Quarterly Economic Commentary analyses the most recent data on economic and social indicators for WA. Key findings from this edition include:
Careful navigation required, as optimism emerges in the New Year horizon
Through a combination of geographic isolation, good management and strong leadership, the community spread of coronavirus was eliminated in WA by the middle of April, a situation which continues to the current day. While strict border restrictions remained in place, the winter months saw an easing of restrictions and social gatherings, and a lift to regional travel bans. This has positioned the WA economy better than most, with WA’s situation the envy of many jurisdictions both nationally and globally.
The WA economy grew by 1.4 per cent in the year to June 2020, with the mining sector contributing the lion’s share of that growth. The mining sector now accounts for 47 per cent of gross value add. Yet with the state’s continued reliance on mining, and in particular on iron ore, the WA economy has become less diversified over time. This reiterates the case for economic diversification, to ensure that Western Australia can benefit from stable and secure economic growth into the future.
Exports in the year to June 2020 rose by 13 per cent in WA, driven primarily by the increasing volume and price of WA’s main export, iron ore. The bulk of WA’s exports (57.4%) are directed to China. This leaves the state vulnerable to geopolitical tensions, and trade wars. While commodities such as barley have been able to pivot quickly to alternative markets, others will be more vulnerable.
WA’s domestic economy contracted by 6 per cent in the quarter to June 2020, with the initial COVID restrictions taking a toll. A key driver of this decline was household consumption (down 10.6% over the quarter to June 2020), which comprises 50 per cent the state’s domestic economy. This hit to household consumption comes on the back of a decline of 1.2 per cent in the quarter to March 2020, and despite the green shoots displayed in 2019, household consumption has now declined by 2 per cent overall in the twelve months to June 2020. However, more current retail trade data is showing a significant bounce back with growth of 11 per cent in the quarter to September 2020, some 15 per cent higher than that reported in the month to September 2019.
Business investment in WA grew by 9.3 per cent over the year to June 2020, but declined by 1.8 per cent in the June 2020 quarter. While Australian businesses have shown a great deal of resilience, cash flow has become a major concern for many businesses. For many, this, along with general uncertainty caused by the COVID-19 pandemic, weakened supply chains and restricted access to global markets will no doubt have led to a cancellation or deferral of investment decisions. It will be interesting in the months ahead to see the extent to which various government incentives aimed at increasing business investment and general business confidence will impact capital expenditure programs.
This Commentary includes some important insights from the new BCEC Small Business Survey 2020. The findings are based on data collected during November 2020, and hence give us a truly contemporary picture of the small business sector in Western Australia.
The share of small businesses that increased the number of employees over the course of the pandemic at least matched the share that had to lay off workers. Revenues have fallen during COVID-19 for more than 4 in 10 small businesses. Yet despite this, many small businesses have adapted to the new circumstances presented by the pandemic, sustaining themselves and their workforces and seizing opportunities where they can.
The BCEC Small Business Survey 2020 invites small business owners to rate which policy measures have helped them through COVID-19, and more than 40 per cent nominated the JobKeeper wage subsidy as the most important support for their business.
There is also a striking degree of optimism shown by the small business sector, with a quarter of small business owners expecting to hire more workers over the next six months. However, this optimism is tempered with some trepidation over what’s in store in 2021 when JobKeeper payments and other supports are withdrawn, and when deferred tax and loan payments become due.