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Western Australian Treasury Corporation 2012 Annual Report - Page 14Western Australian Treasury Corporation 2012 Annual Report - Page 15
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ECONOMIC AND FINANCIAL MARKETS THE WESTERN AUSTRALIAN ECONOMY OVERVIEW WESTERN AUSTRALIA IS A LEADING PRODUCER AND EXPORTER OF A WIDE VARIETY OF MINERALS, WITH THE STATE ACCOUNTING FOR 46 PER CENT OF THE TOTAL VALUE OF AUSTRALIA'S MERCHANDISE EXPORTS IN 2011. THE VALUE OF WESTERN AUSTRALIA'S MERCHANDISE EXPORTS IN 2011 WAS $121.0 BILLION, OF WHICH 92 PER CENT COMPRISED MINERAL AND PETROLEUM EXPORTS. THE ONGOING IMPROVEMENT IN GLOBAL ECONOMIC CONDITIONS SAW WESTERN AUSTRALIA'S REAL GROSS STATE PRODUCT (GSP) INCREASE BY AN ESTIMATED 6.0 PER CENT IN 2011/12, FOLLOWING 3.5 PER CENT GROWTH IN 2010/11. THE DOMESTIC ECONOMY WAS THE MAJOR DRIVER OF GSP GROWTH DURING 2011/12, WITH REAL STATE FINAL DEMAND INCREASING AN ESTIMATED 9.0 PER CENT, LED BY AN ESTIMATED 23.5 PER CENT INCREASE IN PRIVATE BUSINESS INVESTMENT. THE EXTERNAL SECTOR WAS A SOLID CONTRIBUTOR TO STATE INCOME, WITH EXPORT VOLUMES RISING AN ESTIMATED 7.5 PER CENT, WHILE THE TERMS OF TRADE ROSE 5.0 PER CENT. OUTLOOK GROWTH IS EXPECTED TO REMAIN STRONG IN 2012/13. REAL GSP IS FORECAST TO RISE 4.75 PER CENT, WITH BUSINESS INVESTMENT CLIMBING 11.25 PER CENT, DRIVEN BY A NUMBER OF LARGE RESOURCE PROJECTS. EXPORT VOLUMES ARE EXPECTED TO INCREASE 4.5 PER CENT IN 2012/13, THOUGH THE TERMS OF TRADE ARE FORECAST TO DECLINE 5.25 PER CENT FROM THEIR CURRENT RECORD LEVEL. FISCAL OUTLOOK THE STATE BUDGET FORECASTS A GENERAL GOVERNMENT OPERATING SURPLUS OF $196 MILLION FOR 2012/13, FOLLOWING AN ESTIMATED SURPLUS OF $484 MILLION IN 2011/12. THE FORECAST DECLINE IN THE SURPLUS IN 2012/13 IS DUE TO A FURTHER CUT IN THE STATE'S SHARE OF NATIONAL GST REVENUE FROM 7.5 PER CENT IN 2011/12 TO 5.8 PER CENT IN 2012/13. THE SIZE OF THE SURPLUS IS PROJECTED TO RISE TO $345 MILLION IN 2013/14 AND PEAK AT $1,404 MILLION IN 2015/16, AS THE FALL IN GST SHARE OVER THE FORWARD ESTIMATES IS MORE THAN OFFSET BY HIGHER TAX AND ROYALTY REVENUES. THE GLOBAL ECONOMY OVERVIEW THE FAMOUS US AUTHOR AND HUMORIST MARK TWAIN IS QUOTED TO HAVE ONCE SAID, "HISTORY DOESN'T REPEAT ITSELF, BUT IT DOES RHYME". THIS QUOTE IS CERTAINLY TRUE FOR THE MAJOR DEVELOPED ECONOMIES, WHERE HISTORICAL EXPERIENCE IS THAT RECOVERIES FROM RECESSIONS INVOLVING FINANCIAL CRISES AND ENORMOUS LEGACY DEBT BURDENS ARE SUB-PAR AND UNEVEN, WITH THE CYCLE OF DELEVERAGING OFTEN LASTING UP TO A DECADE AS IT WORKS ITS WAY THROUGH THE SYSTEM. FIGURE 1: GROSS DOMESTIC PRODUCT/GROSS STATE PRODUCT – ANNUAL GROWTH (%) 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 FORECAST AUSTRALIA ACTUAL AUSTRALIA FORECAST WESTERN AUSTRALIA ACTUAL WESTERN AUSTRALIA FORECAST SOURCE: DEPARTMENT OF TREASURY, COMMONWEALTH TREASURY, AUSTRALIAN BUREAU OF STATISTICS FIGURE 2: WESTERN AUSTRALIAN GOVERNMENT NET OPERATING BALANCE ($ MILLION) 3,000 2,500 2,000 1,500 1,000 500 0 FORECAST ACTUAL FORECAST SOURCE: DEPARTMENT OF TREASURY 12 WESTERN AUSTRALIAN TREASURY CORPORATION 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
IT IS NO SURPRISE THEN, THAT THE GLOBAL FINANCIAL CRISIS HAS BEEN TRANSFORMED INTO A SOVEREIGN DEBT CRISIS, AS GOVERNMENTS IN THE KEY DEVELOPED ECONOMIES WERE FORCED TO BAIL OUT THE FINANCIAL SYSTEM AS WELL AS THEIR OWN ECONOMIES. THIS HAS BEEN MOST PREVALENT IN EUROPE AND DURING 2011/12, THIS SOVEREIGN DEBT CRISIS THREATENED TO ONCE AGAIN SPILL OVER INTO A RENEWED BANKING CRISIS, THREATENING THE STABILITY OF THE GLOBAL ECONOMY. IN ITS LATEST FORECASTS, RELEASED IN MID-JULY 2012, THE INTERNATIONAL MONETARY FUND (IMF) IS FORECASTING WORLD GROWTH AT 3.5 PER CENT FOR 2012 AND 3.9 PER CENT FOR 2013. THE IMF FORECASTS REMAIN REASONABLY POSITIVE BUT ARE BASED ON THREE IMPORTANT ASSUMPTIONS: • THERE WILL BE ENOUGH POLICY ACTION FOR FINANCIAL CONDITIONS IN THE SO-CALLED EURO AREA PERIPHERY, WHICH INCLUDES GREECE AND SPAIN, TO EASE GRADUALLY THROUGH 2013; • US FISCAL POLICY WILL NOT TIGHTEN SHARPLY IN 2013; AND • STEPS BY SOME MAJOR EMERGING MARKETS TO STIMULATE GROWTH WILL GAIN TRACTION. THE AUSTRALIAN ECONOMY OVERVIEW IN AGGREGATE, THE AUSTRALIAN ECONOMY EXPERIENCED A PERIOD OF SLIGHTLY ABOVE- AVERAGE GROWTH IN 2011/12, THE UNEMPLOYMENT RATE REMAINED LOW AND INFLATION WAS WELL-CONTAINED. OVERALL, REAL GDP GREW BY 3.4 PER CENT IN 2011/12, UP FROM A SUB- PAR 1.9 PER CENT IN 2010/11. GROWTH IN DOMESTIC DEMAND WAS WELL ABOVE AVERAGE AT 5.3 PER CENT IN 2011/12, ALTHOUGH OVERALL GROWTH WAS DAMPENED BY THE FACT THAT PART OF THE SOLID DOMESTIC DEMAND GROWTH WAS MET THROUGH IMPORTS. THE ONGOING STRUCTURAL CHANGES IN THE GLOBAL ECONOMY TO COPE WITH THE INDUSTRIALISATION OF A NUMBER OF KEY ASIAN ECONOMIES CONTINUED TO IMPACT AUSTRALIA VIA THE HIGH TERMS OF TRADE AND THE RESULTANT HIGH EXCHANGE RATE. THIS PRODUCED A SURGE IN MINING INVESTMENT AND MINING-RELATED INDUSTRIES, WHILE GROWTH WAS MUCH WEAKER IN OTHER PARTS OF THE ECONOMY, PARTICULARLY IN THE TRADE-EXPOSED SECTORS. INFLATION OUTCOMES HAVE BEEN BETTER THAN EXPECTED, LARGELY AS A CONSEQUENCE OF THE LEAKAGE OF DOMESTIC DEMAND TO OVERSEAS PRODUCTION, WITH UNDERLYING INFLATION SETTLING IN THE LOWER HALF OF THE RBA'S MEDIUM-TERM TARGET RANGE OF 2 TO 3 PER CENT. FINANCIAL MARKETS THE RBA RESPONDED TO THE BELOW-AVERAGE GROWTH OUTCOME AND MORE FAVOURABLE INFLATION PROFILE BY REDUCING ITS CASH RATE ON FOUR OCCASIONS DURING 2011/12, BY A TOTAL OF 125 BASIS POINTS, TO 3.50 PER CENT. GROWTH IS EXPECTED TO REMAIN STRONG IN 2012/13. REAL GSP IS FORECAST TO RISE 4.75 PER CENT. MELVIN NUNES DEPUTY CHIEF EXECUTIVE OFFICER ANNUAL REPORT 2012 13
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