By Staff Writer

Western Australia faces an economic ‘diaster’ as the mining industry enters into a severe downturn, according to a leading economic forecaster.

In his long term forecasts for February 2009, BIS Shrapnel chief economist Dr Frank Gelber has warned that investment in mining across Australia will decline by 50 per cent or more over the coming months, hitting WA the hardest.

It is likely to result in 10,000 job losses in WA over the next 18 months.

"It’s a dreadful situation to be in, because you can’t fix it, but you can soften it," Dr Gelber told GovernmentNews.

He has called on government to fill the gap left by falling business investment with greater infrastructure spending.

"The time to spend on infrastructure is when private demand is weakened and the resources are there and it is much cheaper to do, but it is very difficult to hold your nerve and do that," he added.

Dr Gelber said the WA State Government will need to “hold its nerve” during an escalating deficit and tackle a backlog of essential infrastructure projects.

"We’ve been agonising through the issue of how much state governments, including WA, will actually be able to resist the pressure put on them by the rating agencies," he said.

"Would they be prepared to let a triple A rating go, like Queensland was, in order to keep investing because it was the right thing to do?"

Local and regional communities servicing the mining industry will experience the flow-on effects of the downturn in mineral investment, including a drop in housing prices, an oversupply of housing, and a decline in retail sales and travel.

"The whole economy suffers as a result of it," Dr Gelber said.

He said local and state governments could help cushion the blow through tourism, but infrastructure investment was a more viable solution.

"The lower dollar makes it much more sensible for Australians to travel close to home, rather than going overseas," Dr Gelber said.

"But the real thing is government investment in infrastructure projects.