Reasons to be optimistic about Australia’s economy

SYDNEY: Strong ties with Asia and investment in new industries are laying the foundation for Australia’s continued growth and success. Australia’s increasing links to the fast-growing Asian economies remain a key reason for continued optimism about the country’s economic outlook.

While China’s demand for hard commodities has fallen, rapidly rising Asian middle-class incomes are seeing increasing demand for Australian services. China’s services industries have already overtaken secondary industries such as manufacturing, infrastructure and utilities as a share of China’s GDP and its growth.

As China’s economy shifts, Australia’s economy has been re-balancing. Tourism, education and business services exports are rising strongly, and financial linkages to China are also growing quickly, albeit off a low base. Net services exports have gone from being a drag on Australia’s growth five years ago to contributing about 0.5 percentage point to GDP growth over the past year.

Chinese visitor arrivals have risen from 350,000 in 2009 to 1.1 million over the past year, while arrivals from the rest of Asia have increased from 1.7 million to 2.4 million for the same period. International enrolments in Australia’s educational facilities rose to a record high in the first half of 2016, driven by an increase in the number of Asian students.

The pick-up in both international students and visitors has also supported rising complementary capital inflows, some part of which is supporting investment in housing.

The future for Australia looks positive over the next decade. Now that the mining investment boom has waned, Australia’s GDP is still being driven by the resources sector as record shipments of iron ore and LNG [liquefied natural gas] leave shores, largely bound for Asia – a clear end benefit from the investment made that will continue for many years to come.

Chinese authorities will drive urbanization of another 300 million people to improve their living standards, and Australia will be an ongoing beneficiary, delivering large volumes of high-quality commodities.

The real opportunity is in the key services sectors that are becoming larger contributors to Australia’s GDP. Education, healthcare, tourism, financial and property services are our growth exports and are benefiting from the AUD’s ongoing depreciation.

In a low-growth environment, Australian business can’t expect the tailwinds of a strong economy to drive growth. However, the upside for the next decade will be the economy’s technology catch-up.

The ability to withstand the worst of the global financial crisis and the recent transition from the mining investment boom demonstrate clearly that the fundamentals of the economy are pretty sound.

Australia is in a good position to deal with the changing circumstances that will emerge in the next 10 years.

The key to Australian success in the next decade is going to be largely based on continuing the transition of the economy toward growth areas, such as the services sector, and in areas where we have the potential to be world-leading, such as education and tourism.

Australia has an outstanding national retirement savings system that invests in the nation, provides people with confidence in their retirement and acts as a bulwark to unexpected and significant economic shocks. The system is A$2 trillion in size at the moment and projected to grow to A$4 trillion in the next 10 years, giving a significant pool of savings to draw from to invest in Australian businesses, infrastructure and property.

Looking forward, compared to the rest of the world Australian budgetary position is relatively strong, and the Reserve Bank of Australia has spare capacity to counter any downturn.All of these are reasons to be upbeat about the outlook for the next decade.