A resilient economy that outperforms in global rankings

25 Mar 2021

Tags

  • Edmund Tang
  • Benchmark Report

Austrade’s Benchmark Report 2021 puts forth five major reasons why Australia is a safe, low-risk destination to invest and do business. Let’s examine the first reason: its resilient economy.

In early 2020, the Australian economy was dealing with the impact of a major drought and bushfires. Then the COVID-19 pandemic arrived, shutting global borders and dislocating trade.

Governments at federal and state levels acted quickly to contain the pandemic. Numerous economic stimulus packages sustained businesses and households throughout 2020. The Australian health system coped with infections and the population generally adhered to stringent, fast-changing lockdown measures.

A fast-recovering economy

The result was that Australia was less hard hit economically than other countries. Australian GDP was 2.4% lower in 2020 than in 2019. This decline was far smaller than the average across advanced economies. Our economy has already regained around 90% of the activity it lost in mid-2020.

The International Monetary Fund recently upgraded Australia’s expected growth rate for 2021 and 2022. It expects Australia to become the world’s 12th largest economy in 2021, up from 14th in 2019 (see chart below). Australia’s GDP will be around A$2 trillion (US$1.5 trillion).

World

Rated AAA by all three credit rating agencies

Australia’s AAA credit rating was reaffirmed by Fitch Ratings on 22 February 2021 following similar decisions made by Standard & Poor’s on 20 October 2020 and Moody’s on 23 June 2020. Australia is one of only nine countries to hold a triple-A credit rating from all three major credit rating agencies. Our AAA credit rating is a strong vote of confidence in the Australian Government’s response to the health and economic crisis caused by COVID-19.

Let’s take a look at some of the reasons for our economic resilience, including our considered response to COVID-19, a diverse mix of competitive industries, a healthy government fiscal position and proximity to Asia’s booming markets.

A balanced response to COVID-19

Australia’s geographical isolation helped us prevent uncontrolled transmission. States and territories also closed internal borders in response to local outbreaks. The government provided an economic package worth 18% of GDP to sustain businesses and households. By the end of February 2021, Australia combined a low fatality rate with a low impact on GST, relative to most other countries.

Low government debt

Australia minimised the damage from COVID-19 with a range of targeted, industry-specific fiscal assistance, yet we remain one of the least indebted developed countries in the world. The International Monetary Fund estimated that the Australian Government’s net debt would be 49% of GDP in 2021. This is well below the 96% average forecast for advanced economies.

A diversified, services-based economy

Australia’s resilience is due in large part to its diversified economy. In 2020, Australia’s mining sector generated 11.0% of GVA, followed by financial services (9.4%), ownership of dwellings (9.1%) and healthcare and social assistance (8.0%). Technology-driven sectors – including professional, scientific and technical services, education and IT – were worth over 15% of total economic production.

Proximity to Asia’s powerhouse economies

Australian trade stands to benefit from Asia’s growing share of global GDP and 2.4 billion middle-class households.[1] Most of Australia’s principal export partners are located in Northeast Asia and Southeast Asia. Our network of 15 free trade agreements gives us preferential access to these fast-growing markets.

Look out for the next Benchmark analysis, where we take an in-depth look at the dynamic industries that are powering Australia’s growth.

 

[1] World Economic Forum, 2019, In 2020 Asia will have the world’s largest GDP