Investor Updates
Why a strong US economy matters
20 August 2013
Richard Leather, Senior Trade & Investment Commissioner, USA and Deputy Consul-General, New York
This year, the US$15.9 trillion US market is predicted to grow nearly 3 per cent against a backdrop of low inflation, low interest rates, falling unemployment and lower power costs.
Profits from US corporations as a percentage of GDP are at all-time highs. Listed stock exchange indices are reaching historic highs and corporate balance sheets have been repaired, holding over US$1.5 trillion of cash in reserve – or about the same amount as the entire Australian superannuation funds pool.
Sometimes it is easy to overlook the fact that, despite the strong growth in China, the US will continue to be one of the largest and wealthiest markets well into the Asian Century.
But what does this mean for Australia?
The US is the primary driver of global Foreign Direct Investment (FDI), with investment quadrupling over the past decade to over US$4 trillion.
In 2010 and 2011, 70 per cent of total US FDI was directed to developed economies, 20 per cent to Latin America, 15 per cent to Asia, 1.5 per cent Africa, and around 1 per cent to the Middle East.
The US remains Australia’s largest source of FDI, representing 24 per cent of stock. In 2012, US FDI stock rose 11.4 per cent to US$131 billion. And this was in a time when the economy was only starting to come out of recession.
US companies employ 425,000 Australians and underpin a great deal of innovation and economic growth in the Australian economy.
With improving business and economic fortunes, FDI will accelerate. The question is, what sectors will benefit?
US FDI patterns generally reflect core US economic trends. So as investment funds in the US economy shift from manufacturing to high technology services, US investment abroad focuses more on high technology, finance, and services industries located in highly developed countries.
This trend could lead to a new wave of productive FDI from the US into Australia.
More information