09 Oct 2020

Tags

• Edmund Tang

• Benchmark Report
• Australian Economy

The start of 2020 has brought huge challenges for Australia, with natural disasters and the COVID-19 pandemic impacting trade and travel. But the strength and dynamism of Australia’s economy gives us increased resilience.

As the Benchmark Report 2020 shows, the Australian economy is built on strong foundations. In multiple global comparisons, Australia stands out for our vigorous trade, good governance and robust institutions.

And by global standards, we entered the COVID-19 pandemic with healthy government finances.

These factors enable Australia to withstand all manner of disruptions. They enable Australia to respond effectively to current challenges.

A network of 14 free trade agreements

In 2018–19, Australia’s two-way trade in goods and services reached A$892 billion. And the majority of that trade is with Asia – one of the most dynamic, fast-growing regions in the world (see table below).

Twelve of Australia’s 15 largest trading partners are within the Asia region. These partners account for A$577 billion of Australia’s two-way trade, or 65 per cent of the total. The scale of this regional trade reflects Australia’s competitive economy, strategic location and liberalised trade.

Australia's exports and imports of goods and services¹
Current prices (A$ billion)

With the latest trade agreement entering into force in July – the Australia-Indonesia Closer Economic Partnership Agreement (IA-CEPA) – Australia now has 14 free trade agreements in place. These agreements account for approximately 70 per cent of Australia’s two-way trade.

In effect, these free trade agreements give Australian companies liberalised access to many of the fastest growing economies across the Asia-Pacific region.

Strong exports heading into 2020

When the data is compiled next year, 2020 will be a terrible year for global trade. Lockdowns, air-freight costs and port disruption all hammered physical exports and imports. But Australia went into 2020 from a position of strength.

With around 53,000 goods exporters^[1] Australian companies sold goods worth A$373 billion in the 2018–19 financial year. This represents an increase of 18 per cent from the 2018–19 financial year. And it followed other recent strong rises – eight per cent in 2017–18 and 19 per cent in FY2016–17 (see table below).

Australia’s minerals and fuels are our largest export earners. Exports of iron ore, coal and natural gas were Australia’s top three exports overall. In 2018–19, they recorded strong increases in year-on-year export values, of 26 per cent, 15 per cent and 61 per cent respectively.

Services: growing before COVID-19

Australia’s trade in services was also growing particularly fast prior to the pandemic. Services make up over one-fifth of Austrade’s two-way trade. They are helping to steadily broaden our export mix beyond resources and agriculture.

Exports rose ten per cent to A$97 billion in 2018–19. Before the pandemic closed borders, the sector benefitted from strong demand from overseas students seeking a high-quality education.

Also, successful tourism campaigns have attracted a rising number of overseas visitors in recent years.

Together, tourism and international education accounted for about 60 per cent of total services exports in 2018–19. Education-related travel grew by 15 percent, year on year. Personal travel services – which is mainly recreational – grew by five per cent.

Future resources

One way to build strength for the future is to diversify Australia’s dependence on a few commodities.

In 2019, the Australian Government released its Critical Minerals Strategy. This strategy aims to make Australia a major supplier of the critical minerals^[2] that are used across today’s advanced manufacturing. It envisages Australia attracting investment to develop mining and processing in 24 rare-earth minerals, where deposits have been identified in Australia.

This strategy will likely have a major impact on Australia’s export resources mix over the coming decade. An updated prospectus will be released shortly. Its goal is straightforward: to position Australia as a world leader in the exploration, extraction, production and processing of critical minerals.