Short, sharp slump for WA resources sector

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Short, sharp slump for resources sector

WA Business News: 9-April-09 by Dan Wilkie

INVESTMENT in mining and heavy industry in Western Australia will nose-dive by $9 billion in 2010-11 but will then steadily recover to the current boom levels, according to new construction industry forecasts.

The Australian Construction Industry Forum's Construction Forecasting Council (CFC) estimates that mining investment will total more than $13 billion a year in 2008-09 and 2009-10, which is a record level, before tumbling to $4.7 billion.

The strong investment this year and next will help to offset the current slowdown in residential and other commercial building activity.

The CFC expects that all sectors will recover from 2011-12 onwards, returning Western Australia to another period of buoyant growth.

CFC chairman Peter Verwer said the abrupt contraction in mining investment in 2010-11 was due to a number of planned projects facing the axe in the current economic climate.

"There's a fair amount in the pipeline, but given the international uncertainties, the global financial crisis and commodity prices, some of those projects are now on hold and being reconsidered," Mr Verwer said.

"Spending's been travelling at such a high level that any downturn is going to flow through to the rest of the economy.

Chamber of Commerce and Industry WA chief economist John Nicolaou said the downturn was unavoidable following the construction boom of the last decade.

"In the next 12 months there's likely to be a fall off in activity in the absence of new projects coming on stream," Mr Nicolaou said.

"WA's economic profile is built around large scale, lumpy projects that can provide for very significant growth in a short period of time, but once they go you can actually see growth fall away quite considerably as well.

"We've been fortunate in recent years that there has been a consistent stream of new projects being constructed."

Despite the CFC's grim short-term forecast and the misgivings presented by the global economic slump, Mr Nicolaou said WA's resources sector was well placed to recover.

"There is still a lot of upside in terms of investment via the construction sector of this state," Mr Nicolaou said.

"The key upside in terms of a sectoral view is the oil and gas sector, and the potential projects that are very close to a decision being made, including Gorgon, Wheatstone and Pluto Mark-2 among others.

"These are significant projects, and to the extent that they do proceed, then that will generate thousands of new jobs both directly in terms of the project itself, and indirectly through the ancillary services that such a project would require.

"There's a lot of uncertainty at the moment and certainly there's potential for a large fall in that sector if these significant projects don't proceed, but if they do then there is certainly upside."

Mr Verwer said despite the decline, construction spending in WA would remain high.

"The long-term outlook for WA is still very strong," he said.