Introduction
The global economy has entered the new decade beset by short-term uncertainty, as the outbreak of the novel coronavirus dampens momentum from 2019. The coronavirus has added uncertainty to the pace of WA’s economic recovery, which in recent months has shown more promise.
As Australia’s most export-oriented state, Western Australia will feel the impact of any prolonged economic weakness in China. WA exported AUD 96 billion worth of goods to China in 2019, representing 53% of the total value of the State’s exports.
The State’s domestic economy finished 2019 on a high note. Real state final demand (SFD) – a measure of economic activity that excludes exports and imports – grew by 1.7% in year-on-year terms to December 2019. That chalks up four consecutive quarters of accelerating growth in SFD, and the strongest year-on-year growth figures since March 2014.
Business investment grew 6.7% in year-on-year terms to December 2019. Growth was driven by machinery and equipment purchases and investment in IP products, particularly related to the mining industry. Commercial construction activity was flat over the year, detracting from total business investment growth. But there are signs that the tide is turning for non-residential construction.
The median house price was approximately 13% lower in December 2019 than at the peak achieved in the first quarter of 2014. However, there are signs that the housing market is stabilising. While median prices remain low, appetite among buyers appears to have shifted, with sales volumes growing by 2% over the year to December 2019
WA’s population grew by 1.1% year-on-year in June 2019, inching above the 1.0% growth achieved in the previous quarter. Growth was helped by net overseas migration of approximately 16,000 people, a six year high.
The State Government ended 2019 on a fiscal high note: WA Treasury’s mid-year Budget update revealed that the general government sector was on track for a AUD 2.6 billion surplus in 2019-20. In total, surpluses worth a cumulative AUD 10 billion are forecast over the forward estimates period, leaving the State Government with plenty of fiscal firepower to fund its initial AUD 607 million AUD17.6 billion stimulus package announced by the Commonwealth.
Western Australia Tourism Industry
Overall, in Year Ending December 2019, WA saw a (+) 16.9% increase in the number of visitors (overnight and daytrip) to/within WA. Total visitor spend in the State increased by (+) 14.7%, largely due to the increase in visitor numbers.
Encouragingly, WA saw a (+) 12.4% increase in total overnight visitors to/within WA for holiday purposes.
Perth experienced a 4.2% increase in visitors Y-O-Y which led to a 2.5% increase in visitor spend to AUD 4.3 billion for the year ended 2019.
While the Australian bushfires will likely hamper tourism in Q1 2020, Perth will not be as impacted as NSW and numbers should recover over the remainder of the year.
Perth Hospitality Market – Demand & Supply
While demand for hotel rooms has gradually increased since 2012, the rate of increase is slowing while supply has substantially increased, widening the drag in the market.
Perth Hospitality Market – Price Trend
Decline in Perth continued with an overall 0.5 % y-o-y decline in RevPAR to December 2019, resulting from a 0.7% % y-o-y increase in Occupancy and a 1.1% y-o-y decline in ADR to by December 2019.
Perth CBD Hotel performance experienced a 4.0% increase in occupancy to December 2019 as compared to December 2018. This could be due to improved affordability due to ADR declines in the region.
Pressure on hotel performance remains as more hotel developments are in the pipeline, although the declines are expected to be lesser than in the last few years.
Outlook
The ultimate economic impact of the coronavirus is difficult to quantify as the scale of the outbreak continues to evolve.
The OECD has estimated that real global GDP growth could decelerate to 1.5% in 2020, well below the 3.0% forecast before the virus hit. That prediction is based on a scenario where the spread of the virus outside of China is mostly mild and relatively well-contained. A more severe outbreak outside of China could reduce global growth further.
A recent Tourism Council survey of WA tourism businesses found 80% were experiencing an impact from the virus. WA Chamber of Commerce chief executive Chris Rodwell said his organisation estimated the sector had already lost AUD 250 million in tourist business this year because of the outbreak.
Occupancy levels in Perth are expected to be greatly impacted in 2020 before some relief from 2021 onwards as the global economy recovers and markets adjust to the new level of hotel stock. Average room rates are also expected to be impacted in Perth, before recovering towards the end of the forecast horizon.
SEBEL PERFORMANCE BENCHAMRKED VERSUS PEERS
The Sebel’s performance in Q1 2020 was impacted by lower tourism and business travel due to the COVID 19 pandemic as well as some impact from bushfires in Australia.
However occupancy did pick up in February driven by business travel before the imposition of travel bans in many countries due to the the spread of COVID 19 in March.
We expect a weak H1 2020 and then a gradual pick-up in demand as travel resumes post the COVID 19 crisis.
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