Australia: Country Profile

Country Report | 24 Jun 2019

The economy will grow healthily in 2019. Business investment and government
spending, will support growth. Wages and consumer prices will pick up only
gradually. Housing prices have been falling steadily for more than a year, damping
housing investment, construction activity and household consumption. A tightening
global environment and trade protectionism by the US and China limit the external
sector. Annual growth of real GDP will average around 2.5% in 2020-2026.

KEY POINTS
ΠThe economy is growing at a pace roughly equal to its potential. Real GDP will
increase by 2.3% in 2019 - down from 2.7% in 2018.
ΠPrivate final consumption in real terms grew by 2.5% in 2018 and growth of 1.9%
is expected in 2019. household disposable income growth is expected to be
supported by employment growth and a gradual pick-up in wages growth. Income
tax cuts already announced will also support disposable income, however the
recent declines in housing prices are a drag.
ΠUnemployment was 5.3% in 2018 and it will be 5.1% in 2019 - its lowest level in
several years. Employment growth will remain above growth in the working-age
population, keeping unemployment low. The gradual pick-up in wages growth is
expected to continue.
ΠA rise in infrastructure investment should help to boost productivity growth in the
medium term. Household spending should pick up a little but to a rate that is lower
than the average. Increased exports of liquefied natural gas will be another driver
over the next several years. Annual growth of real GDP will average around 2.5% in
2020-2026.

Chart 1 Real GDP Growth and Per Capita GDP: 2013-2019

Source: Euromonitor International from national statistics/Eurostat/OECD/UN/IMF

Note: Data for 2019 is forecast. GDP per capita are in constant 2018 prices

FACTS

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Area
7,682,300 square kilometres

Currency
Australian dollar (A$ = 100 cents)

Location
Some 3,680km from its eastern tip to its western extreme, Australia is the world's
second largest island. The country lies about 1,000km from New Zealand, and about
500km south of Indonesia. Thus its climate ranges from the subtropical in the north
to the significantly colder regions of the south.

Capital
Canberra

GOVERNMENT

Head of State
HM Queen Elizabeth II (1952)

Head of Government
Scott Morrison (2018)

Ruling Party
A Liberal-National coalition leads the government.

Political Structure
Australia is a federation of six states and two territories (Northern Territory and
Capital Territory of Canberra), each of which exercises considerable autonomy over
its own affairs. The country's central affairs are run by a Cabinet which answer to a
150-member House of Representatives, elected for a term of three years. The
Senate has 76 members, elected through a preferential system in 12-seat state
constituencies and two-seat territorial constituencies. The territorial senators are
elected for a three-year term. The state senators are elected for a six-year term,
with half of the seats renewed every three years.

Last Elections
Elections to the House of Representatives were held in May 2019. The Liberal-
National coalition won 77 seats while the Labour Party took 68 seats and the
remaining six seats went to smaller parties and independent candidates. Elections
to the Senate were held at the same time. The Liberal-National coalition won 29
seats, the Labour Party took 25 seats and the Australian Greens received three
seats. The remainder were scattered among several smaller parties. Morrison
assumed the position of prime minister in August 2018 after he was elected leader
of the Liberal Party.

Political Stability and Risks

Aboriginal relations pose a constant problem for the government. Canberra spends
A$3 billion each year on aboriginal welfare. Large chunks of land are under the

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control of aboriginal communal councils but the government imposes a form of
"income management". Human-rights activists are strongly critical of the practice.
In 2016, Canberra imposed personal and income taxes on Norfolk Island, an external
territory of Australia, which had previously enjoyed self-governance. In return,
islanders are entitled to access social security payments and Medicare, which they
were previously denied. Most islanders opposed the move.
In 2015, Australia's indigenous Barngarla people won the largest native land claim
ever filed. The claim covers 44,481 square km. The title does not grant freehold to
the Barngarla but it means groups such as mining companies must now negotiate
with the Barngarla over proposed developments.

International Issues
Australia sends asylum seekers who arrive by boat to offshore detention centres in
Nauru and Manus Island in Papua New Guinea. In 2016, Canberra agreed to close
the Manus Island centres.

Australia has blocked a huge land sale amounting to more than one per cent of the
country's landmass. The move underlines Canberra's growing unease over Beijing's
voracious appetite for foreign agricultural assets.

Government Finance
The budget deficit was 0.3% of GDP in 2017 and a surplus of 1.0% was recorded in
2018. In 2019 the target is a surplus of 1.3%.

Public debt totalled A$771,029 million in 2018. This sum represents 40.7% of GDP.
Net external debt is relatively high but there is limited currency risk and the
financial sector is robust.

Government spending on social security and welfare absorbed 27.5% of all

government expenditure in 2018, followed by spending on health (18.9%).

Chart 2 Public Debt: 2013-2018

Source: Euromonitor International

ECONOMY

Economic Structure and Major Industries

The agricultural sector employs 2.4% of the workforce. Australia has some of the
world's most efficient farmers. It is the world's third-largest beef exporter, the

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fourth largest exporter of grain, and one of the world's largest exporters of live
cattle. Farming, however, requires up to 70% of the country's scarce water
resources. Dozens of Chinese companies have invested in Australian agriculture,
prompting officials to sharply cut the threshold for review of foreign investment in
farmland by regulators. Drought conditions limit gains in farm output.

The share of manufacturing in GDP presently amounts to 6.2% of GDP while 7.7% of
the workforce is employed in the sector. The decisions by GM (Holden), Toyota and
Ford Australia to close their Australian plants means that there is no longer an
Australian car making industry. Manufacturing suffers because of the small domestic
market.

Tourism accounts for 3-4% of GDP in most years. The real value of inbound tourism
and business travel receipts rose by 5.1% in 2018 and growth of 4.6% is expected
in 2019. Asian tourists (mainly Chinese) are the main driver. The number of Chinese
tourists visiting Australia has more than doubled. In 2017, Canberra introduced a
new levy on the country's largest banks which will raise A$6.2 billion over the next
four years. Australia's four biggest banks control three-quarters of the domestic
market. Tax cuts for low- and middle-income earners contributed to retail sales
growth of 2.1% in 2018.

Australia has vast amounts of natural resources. It is the world's largest exporter of
coal (30% of the global total) but state officials have begun to buy back mine
licences and tighten planning rules for coal mines. Australia also has almost 40% of
the world's recoverable uranium and is a major producer of copper, iron ore,
manganese, nickel, lead, limestone and gemstones. Mining investment is expected
to fall as large resource-related projects are completed and few new projects are
expected to commence.

Overview of the Economy

Australia recorded its 27th year of recession-free growth in 2018. The economy
grew modestly in 2009-2011 but in 2012 growth was the fastest in several years.
Construction and mining were the main economic drivers. The pace moderated
somewhat in 2015-2016 as commodity prices softened and mining investment fell.
The economy rebounded in 2017 and 2018, thanks to double-digit growth of
exports, the completion of several large mining projects and a pickup in the non-
mining sector.
Australia's transition to a post-mining economy continues but it is not without
problems. Mining shed 22,000 jobs in 2014-2015, but health and community
services created new jobs for almost double that number. However, slack persisted
in the labour market, resulting in very weak growth in wages. In addition, a sharp
drop in interest rates ultimately led to a rapid increase in housing prices - especially
in metropolitan areas, however house prices began to fall again in 2018.

According to the government, Australia's informal economy could be worth US$300

billion a year (about 15% of GDP). One of the biggest components is tax evasion by
multinationals. Tax evasion threatens Canberra's efforts to balance the budget.

Foreign Trade
In 2018, exports made up 18.1% of GDP. Exports (in dollars) grew by 11.3% in 2018
although a fall of 2.1% is expected in 2019. The lower export performance is mainly

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due to the agriculture sector, which is experiencing drought conditions. Commodity
exporters are heavily dependent on China but this raises the degree of uncertainty.
In 2014, Japan and Australia agreed on a trade deal which lowers tariffs on imports
of key products. Australia and China expect to reach a Sino-Australian Free Trade
Agreement in the near future. The deal will cut tariffs and remove other
impediments to Australian exports while relaxing rules on Chinese inward
investment. Canberra hopes to negotiate trade agreements with both the UK and
the EU as soon as possible. However, any agreement with the UK cannot be
finalised before the country leaves the EU. Australia is a member of the new 11-
member Comprehensive and Progressive Agreement for Trans-Pacific Partnership
(CPTPP) which was formally created in March 2018. The new agreement excludes
the US.
The main markets for Australian exports in 2018 were China (33.6%) and Japan
(16.1%). Australia is one of the world's leading exporters of minerals, as well as
agricultural products including meat and wheat. Exports of mineral fuels and related
products accounted for 31.2% of the total in 2018.
The current account deficit was 2.4% of GDP in 2018 and the same deficit is
expected in 2019.

Chart 3 Total Foreign Trade: 2013-2019

Source: Euromonitor International from national statistics/OECD/IMF

Note: Data for 2019 is forecast

Economic Prospects
The economy is growing at a pace roughly equal to its potential. Real GDP will
increase by 2.3% in 2019 - down from 2.7% in 2018. Business investment and
government spending, will support growth. Wages and consumer prices will pick up
only gradually. Housing prices have been falling steadily for more than a year,
damping housing investment, construction activity and household consumption. A
tightening global environment and trade protectionism by the US and China limit the
external sector. Public investment will be supported by the large pipeline of
infrastructure projects. Real GDP expanded 0.2% quarter-on-quarter in seasonally-
adjusted terms in the fourth quarter of 2018.
Prices rose by 1.9% in 2018 and inflation is expected to rise by 1.8% in 2019. The
central bank's inflation target is 2-3%. Tight labour markets and a pick-up in wages
growth are supporting consumption and adding to inflationary pressures.

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Private final consumption in real terms grew by 2.5% in 2018 and growth of 1.9% is
expected in 2019. household disposable income growth is expected to be supported
by employment growth and a gradual pick-up in wages growth. Income tax cuts
already announced will also support disposable income, however the recent declines
in housing prices are a drag. Household debt is also among the highest in the
developed world, although growth has slowed in recent months.
The government is tightening controls on foreign investment rules in response to a
wave of investments from China and other countries in housing, agricultural and
critical infrastructure. Some companies have recently been sold to "all-Australian"
buyers though foreign investors had an interest in the bidding.

Sydney is one of the world's least affordable major housing markets. Canberra
intends to increase spending on housing over the next few years to alleviate supply
constraints. Some states have introduced new taxes on foreign property buyers
and regulators have imposed new taxes to slow house price inflation. New zoning
and planning reforms have been implemented and tax relief has been made available
to first-time home buyers. These measures have caused the housing market to
begin to cool in many cities.
Unemployment was 5.3% in 2018 and it will be 5.1% in 2019 - its lowest level in
several years. Employment growth will remain above growth in the working-age
population, keeping unemployment low. The gradual pick-up in wages growth is
expected to continue. Australia has the third-largest share of part-time workers
among all OECD countries.

Chart 4 Real GDP Growth: 2013-2019

Source: Euromonitor International from national statistics/Eurostat/OECD/UN/IMF

Note: Data for 2019 is forecast

Evaluation of Market Potential

Conditions appear to be in place for a period of steady economic growth. Business
investment outside the housing and mining sectors should rise. The recent rise in
infrastructure investment should help to boost productivity growth and in 2019, the
government announced plans to spend A$100 billion on infrastructure in the next
decade. Household spending should pick up a little but to a rate that is lower than
the average seen prior to the onset of the financial crisis. Increased exports of
liquefied natural gas will be another driver over the next several years. Annual
growth of real GDP will average around 2.5% in 2020-2026.

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Additional opportunities for moving towards a non-mining economy are plentiful.
Australia has considerable export potential in agriculture, medical supplies and high-
end machinery. In the past, key non-resource industries were passed over by
investors owing to the high value of the currency and the diversion of resources to
mining. As conditions change, investment and growth in these sectors should
gradually pick up.

BUSINESS ENVIRONMENT
The government has overhauled the tax system and cut interest rates. Under the
current regime, roughly 80% of taxpayers incur an income tax rate of 30%. The
company tax rate for small companies has also been lowered from 30% to 27.5%,
with new tax breaks to encourage investment in equipment for SMEs. In 2019,
Canberra offered income tax relief of up to A$1,080 per year to people earning
below A$90,000. This is the second part of a seven-year plan designed to reduce
cost pressures on households.

Officials estimate that tax avoidance by multinationals exceeds US$1 billion in

revenues per year. Canberra is moving forward with the privatisation of some
federally owned assets. At the same time, the authorities have tightened scrutiny
of infrastructure sales to foreign investors.

To address its budgetary issues, Canberra will raise the retirement age and impose
a 2% deficit levy on those earning more than US$168,000. Australia's pension
system is healthy but employer contributions are being gradually hiked and will
reach 12% by 2025. New tax cuts are being introduced to encourage innovation in
high-tech industries.

ENERGY
Australia has 4.0 billion barrels of proven oil reserves. Most of these reserves are
offshore in the Bass Strait off southern Australia and the Carnarvon Basin off
Western Australia. Oil production totalled 14.9 million tonnes in 2018. Australia also
has shale oil reserves estimated to be as much as 30 billion barrels.

The country has 3.6 trillion cubic metres of proven natural gas reserves and
produced 88.8 million tonnes of oil equivalent in 2018. The government believes
that offshore basins may have much larger amounts of undeveloped reserves of
natural gas. Planned development of the Gorgon gas field is being driven by
increased demand in booming Asian economies.
Australia's energy consumption is dominated by coal, which provides most of its
power generation. It is now the world's fourth largest producer of coal. Australia
also has the world's largest proved recoverable reserves of uranium (about 29%)
and is one of the major producers of uranium used for nuclear-powered electricity.

Energy efficiency measured by GDP per tonne of energy supplied rose at an average
annual rate of 1.8% in 2013-2018. The government expects energy demand to rise
briskly in the medium term.

Chart 5 Primary Energy Supply (% of total): 2018

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Source: Euromonitor International from International Energy Association (IEA)

SOCIETY

Population
Australia's population is steadily rising and reached 25.0 million in 2018, up from
19.0 million in 2000. The median age in 2017 was 37.5 years - 2.1 years higher than
in 2000. It will rise to 39.4 years by 2030.

Fertility has been relatively stable over time and somewhat higher than that of
most industrialised countries. It is currently 1.8 births per female (slightly less than
the replacement level) and is expected to decline to 1.7 births per female by 2030.
Immigration is an important contributor to population growth. More than a fifth of all
Australians were born overseas and over a quarter of those born in Australia have
at least one parent who was born overseas. Most of today's immigrants come from
Asia.

The population of those over 65 years has more than doubled since 1980 and
numbered 3.9 million in 2018 (15.7% of total population). By 2030, the share will be
18.7%.

The distribution of population is unusual owing to the fact that portions of the
country can support little more than scattered, tiny communities. In most states -
including New South Wales, Victoria, South Australia and Western Australia - the
vast majority of residents are concentrated in major cities.

Chart 6 Age Pyramid in 2018 and 2030

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Source: Euromonitor International from national statistics/UN
Note: Data for 2030 is forecast

Income and Expenditure

Australia's savings ratio is one of the highest of all developed countries. In 2018,
savings were 11.0% of disposable income and it will not change in 2019.
In real terms, consumer expenditure per capita totalled A$43,291 (US$32,351) in
2018. Little or no growth is predicted in the indicator in 2019. Consumer
expenditure on education and communications services will be the fastest growing
categories in 2019-2030. Rising demand, additional fees for private education and
developing technology are the main drivers.
In the period 2019-2030, total consumer expenditure will grow by an average
annual rate of 2.3%. It will increase by a cumulative value of 28.8% during that
period. Total consumer expenditure will represent 56.4% of GDP in 2019 and the
share will gradually fall over the course of this decade.

Disposable income per capita amounted to A$47,823 (US$35,738) in 2018. Little or

no growth is predicted in the indicator in 2019.

During the period 2019-2030, total disposable income will increase by a cumulative
value of 29.9% in real terms - growing at an average annual rate of 2.4%.

Chart 7 Per Capita Annual Disposable Income, Spending and Savings Ratio:
2013-2019

Source: Euromonitor International from national statistics/trade sources/OECD

Note: Data for 2019 is forecast. Per capita income and spending are in constant 2018 prices

Statistical Summary
2012 2013 2014 2015 2016 2017 2018
Inflation 1.8 2.4 2.5 1.5 1.3 1.9 1.9
(%
change)
Exchange 0.97 1.04 1.11 1.33 1.35 1.30 1.34
rate (per
US$)
Lending 7.0 6.2 6.0 5.6 5.4 5.2 5.2
rate
GDP (% 3.9 2.2 2.6 2.5 2.8 2.5 2.7
real
growth)

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GDP 1,515,294.0 1,568,121.0 1,614,006.0 1,640,816.0 1,705,206.0 1,808,045.0 1,898,191.0
(national
currency
millions)
GDP (US$ 1,569,514.5 1,510,959.7 1,451,323.7 1,232,992.7 1,260,140.9 1,385,494.5 1,418,509.9
millions)
Birth rate 13.6 13.3 12.8 12.8 12.9 12.6 12.8
(per '000)
Death rate 6.5 6.4 6.5 6.7 6.6 6.5 6.2
(per '000)
No. of 8,316.5 8,460.4 8,594.7 8,731.7 8,861.6 9,016.2 9,162.1
households
('000)
Total 256,505.4 252,190.4 239,426.0 187,794.5 191,496.2 231,036.2 257,224.8
exports
(US$
millions)
Total 250,508.6 232,199.9 227,478.7 200,639.8 188,271.4 221,269.1 227,107.4
imports
(US$
millions)
Urban 19,414.2 19,774.9 20,095.6 20,410.7 20,756.4 21,134.7 21,497.1
population
('000)
Urban 85.4 85.5 85.6 85.7 85.8 85.9 86.0
population
(%)
Population 18.9 18.9 18.9 18.9 18.9 18.9 18.8
aged 0-14
(%)
Population 66.9 66.7 66.4 66.2 65.9 65.7 65.5
aged 15-64
(%)
Population 14.1 14.4 14.7 14.9 15.2 15.4 15.7
aged 65
(%)
Male 49.8 49.7 49.7 49.7 49.6 49.6 49.6
population
(%)
Female 50.2 50.3 50.3 50.3 50.4 50.4 50.4
population
(%)
Life 79.9 80.1 80.3 80.4 80.4 80.4 80.6
expectancy
male
(years)
Life 84.3 84.3 84.4 84.5 84.6 84.7 84.8
expectancy
female
(years)
Infant 3.4 3.6 3.3 3.2 3.1 3.2 3.1
mortality
(deaths per
'000 live
births)
Adult 99.9 99.9 99.9 99.9 99.9 99.9 99.9
literacy
(%)

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Imports and Exports
2018 2018
Major export destinations Share (%) Major import sources Share (%)
Exports (fob) to Asia 80.5 Imports (cif) from Asia 58.9
Pacific Pacific
Exports (fob) to Europe 5.8 Imports (cif) from Europe 20.1
Exports (fob) to North 4.4 Imports (cif) from North 11.0
America America
Exports (fob) to Africa and 3.7 Imports (cif) from Africa 3.2
the Middle East and the Middle East
Exports (fob) to Australasia 2.8 Imports (cif) from 2.6
Australasia
Exports (fob) to Other 2.0 Imports (cif) from Other 2.3
Countries Countries

© Euromonitor International 2019

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