WA, Qld economies to hit top gear

27 Apr, 2010 03:59 AM

THE gap between the resource states and the rest is set to widen in years ahead as the two-speed economy comes back ''with a vengeance'', a report says.

Forecaster Access Economics says that, as the commodities boom gathers pace, Western Australia and Queensland will expand fastest this financial year, with growth rates of near 3 per cent extending this lead in the long term.

By comparison, manufacturing-heavy Victoria will grow at 2.3 per cent in 2009-10 and New South Wales will expand 1.5 per cent, Access says.

The south-eastern states' prospects improve in 2010-11, with Victoria set to grow at 3.4 per cent, the second-fastest state, and NSW posting 2.1 per cent growth.

But once overseas demand for commodities reaches pre-crisis levels, Access says WA will again be in a league of its own, growing at 4.7 per cent. Helped by spending on oil and gas projects, Queensland's growth rate will hit 3.2 per cent in 2010-11 and Northern Territory will gallop ahead at 4.1 per cent.

Access publishes its latest Business Outlook today.

Among the non-mining states, Access says, Victoria is the standout, in part because efforts to release more land have buoyed its housing and construction industries.

Access director Chris Richardson said another reason for Victoria's strength was that it had gained market share from NSW in the previous resources boom, a dynamic that would persist this time around.

''NSW has already lost a lot of market share to Victoria … so the continuation of that trend will be there, but it won't be as marked as before,'' Mr Richardson said.

The forecast comes before figures this week that will show whether the economic rebound is unleashing inflationary heat.

Economists expect the consumer price index, to be published tomorrow, to reveal a 0.8 per cent rise in prices in the March quarter, or 2.8 per cent on a yearly basis. This compares with the 2.1 per cent yearly rate recorded in December.

Mr Richardson said he expected inflation to build up towards the end of this year, as the economic recovery sparked growing wage demands from workers.

After raising interest rates at five of the past six Reserve Bank board meetings, RBA governor Glenn Stevens last week said the CPI would shed some light on whether inflation was staying within the RBA's target range of 2 to 3 per cent.

Rising interest rates, needed to nip inflationary pressure resulting from the boom in the bud, tend to hit the eastern states hardest because households there have larger mortgages.

The strong Australian dollar, also driven by huge leaps in commodity prices, tends also to hit these states hardest because the higher currency erodes the competitiveness of export industries such as education and tourism.



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