Western Australia's domestic economy contracted for the second straight quarter at the end of 2010, but is tipped for an upswing in the next financial year, according to the state's chamber of commerce.
John Nicolau, chief economist of the WA Chamber of Commerce and Industry, said business investment waned during the December quarter due to the winding up of some major projects.
Government investment proved a drag on growth for the third straight quarter, on lower stimulus spending.
The housing market was a particularly weak performer, Nicolau said, attributing the slump partly to the end of the government's first home buyer's stimulus program.
And while labour market conditions have firmed over the last year, this has still not resulted in a consistent job creation streak.
But an eventual recovery in the housing market, higher levels of investment activity and export returns is expected to drive the state's economy to 5.75% in the next financial year, Nicolau predicted.
Consumer spending, which had begun to pick up in the December quarter, is also predicted to remain strong into FY12 due to the same factor – high population growth – expected to stimulate the housing market.
Nicolau does not expect the Japanese disasters to significantly effect this outlook, despite an anticipated initial impact on exports. Demand for key commodities such as iron ore will remain firm in the longer term, he said, and may even pick up as restoration work begins.