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Australia is a highly developed country with a population similar to Taiwan. In 2021, its total GDP reached 1.5 trillion USD, ranking 13th globally. The prosperous living standards and strong domestic economy of the Australian people have led to a per capita income of nearly 60,000 USD, ranking 9th globally, higher than many wealthy European countries.
Over the past three decades, Australia has undergone a series of transformations. In the early 1990s, the focus was on reforms in industrial relations, a reduction in trade protection and a significant decrease in tariffs, as well as the loosening of restrictions and regulations on the financial industry. The large increase in commodity prices in the early 2000s and the significant increase in resource investment (Resource Boom) in Australia between 2005 and 2015 all supported the country’s strong domestic market and highly resilient economic growth.
Whether during the financial crisis or the sharp drop in commodity prices around 2015, Australia did not experience negative growth. Although this pacific nation, which has seen continuous growth for 30 years, suffered a contraction of 2.4% under the impact of the pandemic, it still rebounded with a growth of nearly 5% in 2021, even after China banned all imports from Australia at the end of 2020.
Australia’s future development will be based on several factors, including the export of commodities, a stable labor market, strong domestic consumption, stable political and business environment, and the development of the service industry (tertiary industry) in Australia.
Commodity exports mainly come from China, India, and the increasing population, consumption power, and infrastructure needs of the entire ASEAN market. Compared to competing economies, such as Brazil, Australia has a clear relative advantage due to its geographical location. Although relations with China have sharply declined after the pandemic, with the Labor party in power and China’s demand for Australia, the relationship is expected to continue to improve.
GDP Data is updated in January, 2023. Figures below represent GDP contribution with the expenditure approach by segment. Data is sourced from World Bank, IMF, and local government and refactored by our team. Forecasted data is from EIU.
Before the pandemic, the Australian economy experienced 28 years of uninterrupted growth since 1991. Despite the Internet bubble and financial crises, it maintained an average growth rate of 3%, significantly higher than the 2.2% growth rate of high-income countries during the same period. Even after the pandemic, Australia’s recession was only 0.1%, far below the global average.
In terms of the main drivers of Australia’s economy, structural changes have occurred over time. In the first decade of the 21st century, from 2000 to 2009, private consumption growth was nearly on par with export growth, both close to 3.7%. During this time, Australia’s economic growth remained at around 3.2%. However, in the following decade, Australia’s exports grew with the demand for natural resources in emerging markets (particularly China) and the economic expansion, allowing the country’s export growth rate to reach 4% from 2010 to 2019, while private consumption in the same period was 2.6%.
Nonetheless, during the pandemic, the global economy stagnated in 2020, and then China’s zero-tolerance policy and trade penalties in 2021 severely impacted the momentum of Australia’s exports, causing a recession for two consecutive years at the export level. In 2022, although China ended the zero-tolerance policy at the end of the year, it was too late, and falling iron ore prices also hindered export recovery. While it is generally expected that Australia’s exports will return to their original growth in 2023, China’s slowing economy will increase the importance of trade with other regional countries for Australia. Australia’s participation in the CPTPP and active pursuit of trade agreements with the European Union and India will help diversify its dependence on the Chinese market. From 2020, China’s share of Australia’s exports will also drop by 29.5% (as of August 2022).
Regarding private consumption, despite negative growth in 2020, it quickly rebounded, supporting a 2.7% growth rate in 2021, higher than the GDP growth rate. In 2022, post-pandemic consumption growth factors contributed to a growth rate as high as 6.5%. However, in the near term, tighter monetary policy will negatively impact private consumption momentum, especially in Australia, where consumers have already spent much of their accumulated wealth during the pandemic. Similarly, capital formation, or fixed investment, will also be affected by monetary tightening, although investments in renewable energy and sustainable infrastructure will continue.
Exchange rate: The Australian dollar depreciated against the US dollar in 2022 but appreciated on a trade-weighted basis. By mid-2023, factors such as the Federal Reserve’s anticipated end of the interest rate hike cycle, slowing US economic growth, continued interest rate hikes by the RBA, and Australia’s GDP growth will all support the Australian dollar. Additionally, China’s strong GDP growth in the first quarter of 2023 is likely to boost Australia’s exports as pandemic restrictions are lifted, further promoting the appreciation of the Australian dollar. ING predicts that the Australian dollar will appreciate from the current 0.67 to 0.71 by the end of 2023.
Inflation: In its February 2023 Monetary Policy Statement, the Reserve Bank of Australia cited supply chain disruptions related to the pandemic and the Russian invasion of Ukraine as the main causes for inflation increases over the past year. However, strong domestic demand, a tight labor market, and capacity constraints due to natural disasters (such as floods) disrupting certain industries also contributed to rising prices. Overall, the inflation rate for 2022 is 7.8%, with a year-end forecast of 6.25%.
GDP Data is updated in January, 2023. Figures below represent GDP contribution with the expenditure approach by segment. Data is sourced from World Bank, IMF, and local government and refactored by our team. Forecasted data is from EIU.
English 25.9%, Australian 25.4%, Irish 7.5%, Scottish 6.4%, Italian 3.3%, German 3.2%, Chinese 3.1%, Indian 1.4%, Greek 1.4%, Dutch 1.2%, other 15.8% (includes Australian Aboriginal .5%), unspecified 5.4% (2011 est. by CIA)
English 72.7%, Mandarin 2.5%, Arabic 1.4%, Cantonese 1.2%, Vietnamese 1.2%, Italian 1.2%, Greek 1%, other 14.8%, unspecified 6.5% (2016 est.)note: data represent language spoken at home
Protestant 23.1% (Anglican 13.3%, Uniting Church 3.7%, Presbyterian and Reformed 2.3%, Baptist 1.5%, Pentecostal 1.1%, Lutheran .7%, other Protestant .5%), Roman Catholic 22.6%, other Christian 4.2%, Muslim 2.6%, Buddhist 2.4%, Orthodox 2.3% (Eastern Orthodox 2.1%, Oriental Orthodox .2%), Hindu 1.9%, other 1.3%, none 30.1%, unspecified 9.6% (2016 est. by CIA)
In 1901, the British passed legislation allowing the six colonies of Australia to be fully self-governing and formed the Commonwealth of Australia. Since then, Australia and the United Kingdom have gradually alienated, and in 1981, the legislation completely separated from the United Kingdom to become an independent Commonwealth of Australia. However, in terms of constitutional monarchy, Australia still respects the British monarch as its Head of State.
During World War II, as the United States became the dominant player in the Asia-Pacific region after the war, Australia and the United States increased military exchanges, and the United States also replaced the United Kingdom as Australia’s main military alliance. During the Cold War, intelligence cooperation by the Five Eyes alliance further strengthened this situation. In recent years, with the return of the United States to the Asia-Pacific under the Obama administration, and the establishment of the military-diplomatic-security partnership AUKUS during the Trump administration, exchanges between Australia and the United States have also been greatly strengthened.
In terms of trade, China has been Australia’s largest trading partner since the end of 2000. Factors such as the improvement of relations have led China to impose trade penalties on Australia through import restrictions and other means. However, due to factors such as China’s domestic demand and the new government (the Labor Party government)’s softening attitude towards China, the relationship between the two parties has gradually warmed up.
In the short term, the current main policy focus of the Australian government comes from inflation caused by factors such as strong purchasing power growth and rising prices; in addition, it also focuses on climate change and environmental sustainability issues that have seriously affected Australia in the past few years; in addition, Australia It will also focus on human capital policies such as health care, education and immigration, with the aim of increasing Australia’s productivity and gradually reducing its dependence on natural resources.
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