Robust economy underpins Australia's growth

11 Apr 2019

Tags

  • Edmund Tang
  • Australian Economy

Austrade’s Benchmark Report 2019 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 robust economy.

Growing 3.2% on average each year since 1992 (see chart below), Australia is the only major developed economy to have recorded no annual recessions from 1992 to 2018.

The International Monetary Fund (IMF) remains positive on Australia’s economic outlook. In its latest assessment, the IMF forecasts that Australia’s real GDP will grow by an average rate of 2.7% per year from 2020 to 2024.[1] This projected growth rate is the highest among major advanced economies.

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 its smart people, sophisticated services sector, abundant natural resources, strategic location close to the dynamic Asian region, and agility to adapt to changes in the global economy.

Asia: Driving Australian and global growth

The Asia-Pacific region is not only strategically important for Australia, but also for the global economy. The IMF is forecasting that the Asia-Pacific region’s share of global GDP in terms of purchasing power parity valuation will double to over 45% (US$177 trillion) by 2023. Over the same period, the combined economies of China and India will likely represent over 30% of the world’s GDP, up from around 6% four decades ago (see chart below).

Australia’s proximity to and strong trade and investment ties with Asia mean we are well placed to benefit from the region’s growth and demand for high-quality goods and services.

A services-based economy

The Australian economy is more diversified than its export basket might suggest, with the combined services sector accounting for over three-quarters of real industry output.

The services sector’s significant contribution to output is the result of Australia’s successful transition to broader-based drivers of economic growth. Adjustments in interest rates, changes in the Australian exchange rate, and moderate wage growth are all working to shift resources from mining-related sectors to service sectors.

Overall, Australia’s services sector has grown by an average of 3.6% per year since 1992. Information Media and Telecommunications; Professional, Scientific and Technical Services; and Financial and Insurance Services have all risen by an average of over 4.5% a year over the same period. This means Australia’s output has been largely driven by technology- and knowledge-intensive service sectors (see chart below).

Healthy fiscal position

In April 2019, the Australian Government announced a A$7.1 billion surplus in its 2019–20 Budget, the first in 12 years. In response to our improving budgetary position and strong economic management, Standard & Poor’s has again confirmed Australia’s AAA credit rating. Australia is now one of only 10 countries with a AAA credit rating from all three major credit rating agencies.

The following chart demonstrates the Australian public sector’s healthy financial position. The IMF in its Fiscal Monitor estimated that the Australian Government’s net debt would be around 19% of GDP in 2019, well below the 74% forecast for advanced economies as a group. The IMF is predicting that Australian Government debt will further fall to 15% of GDP by 2023, while the average debt ratio of advanced economies will remain high at about 73% of GDP (see chart below).

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.

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[1]  In its World Economic Outlook April 2019, the IMF is projecting a 2.1% growth rate for Australia in 2019. However, the IMF projects that Australia’s economic growth rate will likely rebound to 2.8% in 2020 and remain at around 2.7% a year from 2021 to 2024.