Spending across Government would be scrutinised in coming months to protect the State's triple-A credit rating and Budget surplus amid tumbling iron ore prices, Treasurer Troy Buswell said yesterday.

The warning came as a key economic index suggested the WA economy was in for its toughest six months since the global financial crisis. It said sectors outside the mining industry were particularly vulnerable.

The gloom did not stop Mr Buswell and Premier Colin Barnett committing to a six-year, $1 billion-plus mission to equip Perth's northern corridor and central east and west with 22km of light rail.

The pair yesterday announced the rail would be named Metro Area Express, or MAX, and said they hoped to secure Commonwealth and private sector contributions but the State Government would be the dominant funder.

Asked whether the Government could afford the MAX given slumping iron ore prices threatened to wipe $1.5 billion from this year's Budget, Mr Buswell said population growth meant WA couldn't afford not to build it.

He refused to be drawn on potential cuts.

"We have to look at a whole range of factors across Government in terms of our spending and in terms of other things we can do basically to reduce or maintain or control recurrent spending," he said.

Mr Barnett conceded the State's finances were "strained" but by the time MAX construction began in 2016, the Fiona Stanley Hospital and children's hospital would be completed and the Burswood stadium half-built.

Federal Infrastructure Minister Anthony Albanese said the Commonwealth added $4 million to the State's $11.8 million for feasibility and planning work because it was a strong supporter of public transport. But it would not commit to helping build it until that work was complete.

Shadow treasurer Ben Wyatt said he was "flabbergasted" Mr Buswell had estimated the MAX would cost about $1 billion based on a light rail system on the Gold Coast.

"That was 13km long that cost $1 billion now, as opposed to this project that's 22km long six years from now," he said.

The WA Chamber of Commerce and Industry's leading index, which attempts to capture how the economy will perform in coming months, has dropped for the third consecutive month to a 10-month low. It has been dragged down by a combination of a drop-off in building approvals, a slowdown in overall business investment and lower lending finance.

"The index shows the next six months will remain uncertain for those not connected to the mining sector and most likely see a further widening in WA's two-speed economy," CCI chief economist John Nicolaou said.

But a report set to be released today by Deloitte Access Economics has found that despite complaints from the sector, retailers have had a reasonable six months.

The West Australian

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