A significant cut in interest rates and electric cars could be part of WA’s economic future according to a leading economist

Stock image.
Stock image.

A SIGNIFICANT cut in interest rates is on the horizon, according to international economist Jonathan Pain.

Speaking at the UDIA WA industry lunch: Perth in a global context, the author of The Pain Report said if it was not for the looming Federal election the RBA would have already cut rates, potentially by up to 0.5 per cent.

Representatives of Bankwest, RAC Finance and the NAB who spoke at the event were more cautious, expecting rates to remain flat for the rest of the year.

NAB head of product management mortgages Tom Crowley said the concern was the cost of funding would increase.

Overall, Mr Pain said the future was bright.

While most news content we were exposed to was overwhelmingly negative and sensationalist, he said the world economy had never been in better shape with the “fewest countries in recession that we have seen in modern times”.

“Today we have growth in the great majority of nations around the world,” Mr Pain said

Closer to home, the Chinese economy had slowed but was still growing.

“The increase in the size of the Chinese economy last year was larger than the entire Australian economy as at the end of 2017,” Mr Pain said.

He also said Australia was attractive to Chinese investors, who saw it as their number one preferred destination, with 21 per cent of Chinese chief executives identifying Australia as a growth market for the year ahead.

Australia had not ranked in their top five for 2018 and 2017.

Within Australia, in the short term, Mr Pain said we could expect slower growth, weaker housing particularly in Sydney and Melbourne, and the RBA to cut rates.

“The RBA is going to cut rates so aggressively it’s going to make your eyes water,” he said.

“The cash rate is 1.5 per cent and the RBA is getting nervous.

“We’re getting negative multipliers flowing though the economy with large amounts of household debt, discretionary spending is down and retail sales are down.

“The RBA is going to cut rates, but there is an election between now and when they’re going to cut – I think they would have already cut by up to half a percent.

“By the end of this cycle. we might even see something with a 0 in front of it.”

Mr Pain said the past and present governments’ increased spending on infrastructure was a positive sign.

“Infrastructure has been a real focus and it’s absolutely necessary,” he said.

“It’s a massive productivity booster and the economic multipliers from infrastructure spending were very powerful.

“Spending on infrastructure is great news.”

Mr Pain said WA had the chance to lead the way with the electric vehicles market, with all the materials needed to make electric vehicle batteries available in the state.

He said research indicated electric vehicles would overtake internal combustion engines in just over 20 years, with more than 20 million sales predicted by 2030.

He cited BP chief economist Spencer Dale who was even more bullish and predicted the global fleet could expand to 450 million by 2035.

WA also had the opportunity to capitalise on tourism to boost the economy, with it only accounting for 2.6 per cent of state GDP.

WA’s reliance on China was an economic risk, and the state needed to diversify.