Resilience underpins Australia’s rock-steady investment credentials

02 Sep 2020

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  • Edmund Tang

Austrade’s Benchmark Report 2020 suggests four major reasons why Australia is a safe, low-risk place to invest in and do business. Each of these reasons is supported by charts and graphs that benchmark Australia’s global performance, and I’ve put the relevant links into this article.

Step through these charts, and you’ll see why Austrade is ideally placed to bounce back quickly from the pandemic and its associated economic disruption.

Resilient economy

Let’s examine the first reason: a resilient economy. In turbulent times, the Australian economy benefits from rock-solid foundations. Prior to 2020, the economy experienced just two years of negative growth during the previous six decades (see chart below). And since the last recession in 1991, our growth rate has averaged 3.2 per cent. This is higher than every other major developed economy in the world.

Australia’s increasing trade links with near neighbours are a major factor. The Asia region is ultra-fast growing, and Australia’s network of 14 free trade agreements across Asia and the Pacific have helped agile Australian businesses to rapidly expand.

The Australian economy’s resilience is sustained by robust policy frameworks, strong institutions, a healthy government fiscal position and a sophisticated financial system. Our performance is also supported by an attractive investment environment and strong trade ties with the Asian region.

Australia’s impressive economic performance also reflects a sophisticated services sector, global competitiveness and abundant natural resources.

Australia's economic growth since 1961

GDP, annual percentage change

Australia

Notes: 1. AAGR = Average annual growth rate.

Sources: Australian Bureau of Statistics Cat. No. 5206.0 Cat. No. Australian National Accounts: National Income, Expenditure and Product, Table 1 (Released 3 June 2020); Austrade

Proximity to Asia’s powerhouse economies

Secondly, Australia benefits from being part of an ultra-fast growing region of the world. Most of Australia’s principal export partners are located in Northeast Asia and Southeast Asia, and a network of 14 free trade agreements gives Australian companies preferential access to these fast-growing markets.

Australia’s proximity to Asia means we are well placed to benefit from the region’s growth and demand for high-quality goods and services. The fact we have developed strong trade and investment ties with many of these countries also helps.

Asian economic growth

GDP based on purchasing power parity (PPP)

Asian economic growth, GDP based on purchasing power parity (PPP)

Sources: International Monetary Fund, World Economic Outlook Database April 2020 (Released 15 April 2020); Austrade

A services-based economy

A third reason is that Australia’s diversified, services-based economy is underpinned by a diverse mix of successful industries. In 2019, the country’s services and goods industries accounted for 82 per cent and 18 per cent of real gross value added (GVA) respectively.

The largest contributor was the financial services sector (generating 9.3 per cent of GVA), followed by mining, healthcare and construction. Technology-driven sectors – including professional services, education and IT – are worth over 15 per cent of total economic production.

Australia's real gross value added (GVA) by industry

Total ending December 2019, as a percentage of total industry

Australia

Sources: Australian Bureau of Statistics Cat. No. 5206.0 Australian National Account, March 2020, Table 6 Gross Value Added by Industry, Chain volume measures (Released 3 June 2020); Austrade

Low government debt

Lastly, Australia entered 2020 with very low public-debt by international standards. This means that as the effects of lockdowns and state subsidies change the public debt profile of almost all economies, Australia is better positioned than most.

In its April 2020 ‘Global Fiscal Monitor’ report, the International Monetary Fund reported that the Australian Government’s net debt was just 23 per cent of GDP in 2019. This is well below the 77 per cent average for advanced economies (see chart below).

Moody's Investors Services reaffirmed Australia's Aaa credit rating on 23 June 2020 and maintained the country’s ‘stable’ outlook. Besides Australia’s fiscal strength, this also reflects the economy's strengths and good governance – including health management – that will support the country's resilience in response to the COVID-19 pandemic.

Incidentally, the Moody's report confirmed Australia as one of only 10 economies with a triple-A credit rating from all three major ratings agencies: Moody's, Standard & Poor's and Fitch Ratings. In its latest assessment, Moody's highlighted that Australia’s wealth, diversification and effective labour market have reduced the credit impact of shocks. Moody’s also highlighted Australia’s sound monetary, financial and fiscal institutions — with their track record for proactive and effective policymaking.

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

For further economic commentary and analysis of the major trends and events that shape Australia’s trade and investment performance, visit Economics at Austrade.

General government net debt, 2019

As a percentage of GDP

General government net debt, 2019, As a percentage of GDP

Sources: International Monetary Fund (IMF), IMF Fiscal Monitor April 2020, Statistical Tables A8, A15 and A16; Austrade