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Economic Overview

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

The Australian economy experienced 26 years of uninterrupted economic growth. it was the only OECD country that did not enter into recession during the financial crisis of 2007-2008, holding one of the highest growth rates of the developed world. In 2022, Australia is the world’s 13th largest economy. Under the global effect of the COVID pandemic, it’s GDP growth amounted to -2.4% in 2020, down from 1.9% a year earlier but bounced back in 2021 at 3.5%. The economy continues to be driven by business and government spending, while households and the consumer sector struggle amid low wages growth (generally, consumer spending represents almost 60% of the economy). The country also benefits from large-scale exports of agricultural products and a vigorous financial sector. According to the IMF's October 2021 forecast, GDP growth is expected to pick up to 4.1% in 2022 and then to reach 2.6% in 2023, subject to the post-pandemic global economic recovery. A risk is that the recovery in business and consumer sentiment is hampered by a rise in business insolvencies and renewed labour market weakness as policy support was scaled back in 2021. The economic recovery has been uneven due to differences in the impact of voluntary and imposed confinement across regions, industries and firms. Continued international border restrictions have hampered the recovery in education and tourism exports (OECD, 2022).

In 2021, the inflation rate in Australia was 2.5%, a rate that is expected to stabilise above pre-pandemic levels of 1.6% in 2019, at 2.1% in 2022 and 2.2% in 2023, according to the latest World Economic Outlook from the IMF. Due to the COVID-19 crisis, the current government budget balance showed a large deficit in 2020 (-7.9 % of GDP) and 2021 (8.1%), which is expected to recover to -5.8% in 2022 and -3.8% in 2023. IMF evaluated the 2021 government debt at 62.1% of GDP, expecting it to reach 66.4% and 67.2% in 2022 and 2023 respectively. Private consumption should continue to decrease as households become more cautious. Some support is coming from fiscal policy in the form of infrastructure spending, tax breaks and social transfers, and from a still accommodating monetary policy. Investment is also set to get some traction, benefiting from still ample corporate profits, favourable taxation and higher demand for infrastructure and services. A risk is that the recovery in business and consumer sentiment is hampered by a rise in business insolvencies and renewed labour market weakness as policy support is scaled back in 2021.  Services exports in particular (tourism and education) are expected to regain momentum in a post-COVID world, helped by a renewed demand from Asia-Pacific neighbours. The Government is seeking to increase national appeal relative to its Asian competition in international trade. At the same time, to boost the economy, Australia is increasing its economic integration with the Asia-Pacific region and Europe, with which it has signed trade agreements while maintaining preferential relations with the United States. 2021 was a year of increasingly tense relationship with China, Australia's biggest trading partner.

In 2022, the country’s most immediate challenge remains related to the economic, social and public health impacts of the COVID-19 pandemic. The unemployment rate was quite low until the pandemic (5.2%) but picked at 6.5% in 2020 before coming back to 5.2%. According to the Australian Bureau of Statistics (ABS), approximately 636 700 Australians were unemployed in November 2021, a decreasing number. The ABS also reported that underemployment - defined as people who want to work more - had also decreased to 7.5%. The IMF expects the unemployment rate to decrease to 4.8% in 2022 and 4.7% in 2023. Moreover, Australia must face an ageing population and climate change impacts, such as the loss of 20% of the Great Coral Reef's coral due to a catastrophic bleaching situation, catastrophic bushfire - during the 2019-2020 fire season over 17 million hectares had been burned across the country - and the increasing frequency and duration of droughts putting an unprecedented level of water stress on the Australian agriculture. The country is also one of the largest Co2 polluters per capita in the world.

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 1,392.331,359.37e1,610.561,677.451,772.05
GDP (Constant Prices, Annual % Change) 1.9-2.44.24.12.5
GDP per Capita (USD) 54,47752,905e62,61964,89567,842
General Government Balance (in % of GDP) -4.1-7.9e-8.1-5.8-3.8
General Government Gross Debt (in % of GDP) 46.657.3e62.166.467.2
Inflation Rate (%) 1.60.92.52.12.2
Unemployment Rate (% of the Labour Force) 5.26.55.24.84.7
Current Account (billions USD) 9.8536.2157.2922.219.25
Current Account (in % of GDP) 0.72.73.61.30.5

Source: IMF – World Economic Outlook Database , October 2021

Note: (e) Estimated Data

Country Risk

See the country risk analysis provided by La Coface.

 

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Main Sectors of Industry

Traditionally, Australia is an importer of finished goods. Its industrialisation is fairly recent, a fact which explains the small scale of its manufacturing sector. Nevertheless, the sector is characterised by high productivity levels, with 75% of the industries rating above the global average. The industrial sector employed 19% of the workforce in 2021 (World Bank, 2022) and contributed to just over a quarter of the GDP (25.5%). The manufacturing industry is built around the food industry (27% of the workforce in 2021), machinery and equipment (around 20%), metal processing and metal goods (nearly 16%), the chemical and petrochemical industries (slightly more than 10%) and Building materials, wood, furniture & other manufacturing products with 17% (AI Group, 2021).

Agriculture employed 2.5% of the workforce in 2021 and contributed 2.1% to the GDP (World Bank, 2022). However, the agricultural and mining sectors are the most important for exports: Australia is a vast agricultural country and one of the world's main exporters of wool, meat, wheat and cotton. The country is overflowing with mineral and energy raw materials, which secure substantial revenues when exported (Australia was again the world’s largest producer of iron ore, gold and uranium in 2021, and stayed the world’s largest LNG exporter ahead of Qatar the same year). In fact, iron ore exports alone account for 24% of the country's total annual exports and iron ore was the first Australian commodity to reach the 100 billion AUD mark in annual export value, in 2019-2020 (Resources Energy Quarterly report, 2020). Australia also has the world's largest reserves of numerous strategic resources, such as uranium, of which it holds 40% of the world's confirmed reserves.

The services sector occupies a dominant position in the Australian economy, contributing to 66.3% to the GDP and employing 77.7% of the workforce (World Bank, 2022). The biggest growth in this sector has been the rise of business and financial services (holding the world’s sixth largest pool of managed fund assets). Health care and social assistance have also given a fundamental contribution to growth. Travel services, such as education-related travel, recreational travel and business travel services have also been growing significantly until 2020.

The COVID-19 pandemic has had a powerful impact on the global economy since 2020. Nevertheless, the global recovery continues, even if the momentum has weakened towards the end of 2021 and uncertainty has increased as the pandemic resurged, leaving lasting imprints on medium-term performance. The surge in global inflation has investors fretting about future growth, but many economists say price surges will subside, making way for 4.7% global GDP growth in 2022 (International Monetary Fund - IMF, 2022 & Morgan Stanley, 2021). The impact of the pandemic appears to have affected both sides of most sectors and markets in Australia for the second year in a row, demand disruptions having run up against supply problems.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 2.6 19.1 78.4
Value Added (in % of GDP) 1.9 25.7 66.0
Value Added (Annual % Change) -8.0 n/a 0.3

Source: World Bank - Latest available data.

 
Monetary Indicators 20162017201820192020
Australian Dollar (AUD) - Average Annual Exchange Rate For 1 USD 1.351.301.341.401.49

Source: World Bank - Latest available data.

 

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Foreign Trade

Australia is very open to international trade, which represented 44% of its GDP in 2020 (World Bank, 2022). It had the 3rd freest economy in the world in 2021, placing its trade freedom as one of the highest worldwide (The Heritage Foundation, 2021). The country mainly exports iron ores slag and ash (36% of total exports), mineral fuels, oils, distillation products (14%), gold and other precious stones, metals, coins and pearls (7.6%), meat and edible meat offal (4.1%). On the other hand, its main imports include machinery (15%), Vehicles other than railway and tramway (12%), Electrical and electronic equipment (12%), Mineral fuels, oils, distillation products (8.1%) and pharmaceutical products with 4,1% of total imports (Trading Economics, 2021). The International Monetary Fund (IMF) is forecasting a rebound of 5.5% in the volume of exports of goods and services of this country in 2022, after a fall of 10.1% in 2020 and 1% in 2021 due to the COVID pandemic, and an increase of 8.3% of its imports, after a fall of 13.4% in 2020 and an increase of 6.8% in 2021 (IMF Country Report No. 21/255, December 2021).

Its main partners are China, Japan, South Korea, India, The USA, Germany, and Thailand (Comtrade, 2022). Structurally, Australian foreign trade is highly dependent on the Chinese economic situation and the country's diplomatic relations with China. As a bloc, the EU is Australia's second largest trading partner. As such, Australia and the European Union launched negotiations for a free trade agreement in mid-2018, but no deal has been signed yet. The country is also negotiating trade agreements with the Gulf Cooperation Council, India, Peru, Indonesia, and Hong Kong. On the 15th of November 2020 Australia has also signed the Regional Comprehensive Economic Partnership (RCEP) with 14 other Indo-Pacific countries. This free trade agreement is the largest trade deal in history, covering 30 per cent of the global economy. It includes the Association of Southeast Asian Nations (ASEAN : Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam) and ASEAN’s free trade agreement partners (Australia, China, India, Japan, New Zealand and Republic of Korea). The RCEP covers goods, services, investment, economic and technical cooperation. It also creates new rules for electronic commerce, intellectual property, government procurement, competition, and small and medium sized enterprises.

The country's trade balance was characterised by a structural deficit until 2007, but since then the country has been alternating between periods of surplus and deficit. The latest trade data from the Department of Foreign Affairs and Trade and Investment (DFAT) confirmed that the Australian trade sector is highly resilient and performed strongly since the start of the pandemic (Source: DFAT Trade and Investment publications and articles, accessed December 2021). Australia achieved a record high surplus of over A$75 billion in 2020, in terms of the trade balance in goods and services, an increase on the previous two years with A$68 billion in 2019 and A$22 billion in 2018 (Source: DFAT Trade and Investment publications and articles, accessed July 2021). Australia’s two-way trade in goods and services reached almost A$800 billion in 2020. Most of this trade is with Asia. 12 of Australia’s 15 largest trading partners are within the Asia region. These partners accounted for A$516 billion of Australia’s two-way trade, or two-thirds of the total.

In 2020, Australia exported AUD 796,9 billion of goods and services (USD 571,8 billion), a 13.2% decrease compared to the previous year (Austrade, 2021). Seasonally adjusted, as of October 2021, Australia's trade balance was $11,220 millions of October 2021 (DFTA, 2021).

 
Foreign Trade Values 20162017201820192020
Imports of Goods (million USD) 196,150228,780235,386221,564211,109
Exports of Goods (million USD) 190,271231,131257,098271,005250,578
Imports of Services (million USD) 56,53266,61072,18670,72537,225
Exports of Services (million USD) 53,94164,04268,52470,14847,877

Source: World Trade Organisation (WTO) ; Latest available data

Foreign Trade Indicators 20162017201820192020
Foreign Trade (in % of GDP) 40.841.843.345.744.0
Trade Balance (million USD) -5,79510,50320,94348,01439,940
Trade Balance (Including Service) (million USD) -10,2387,20217,09446,96949,975
Imports of Goods and Services (Annual % Change) -0.14.87.30.2-7.3
Exports of Goods and Services (Annual % Change) 6.85.54.14.0-1.9
Imports of Goods and Services (in % of GDP) 21.520.621.421.620.1
Exports of Goods and Services (in % of GDP) 19.321.221.824.123.9

Source: World Bank ; Latest available data

Foreign Trade Forecasts 20212022 (e)2023 (e)2024 (e)2025 (e)
Volume of exports of goods and services (Annual % change) -1.05.68.03.92.1
Volume of imports of goods and services (Annual % change) 6.88.39.64.62.7

Source: IMF, World Economic Outlook ; Latest available data

Note: (e) Estimated Data

 
International Economic Cooperation
Australia is a member of the following international economic organisations: OECD, Asia-Pacific Economic Cooperation (APEC), WTO, G-20, Pacific Islands Forum (PIF), ICC, among others. For the full list of economic and other international organisations in which participates Australia click here. International organisation membership of Australia is also outlined here.
Free Trade Agreements
Australia is a member of Regional Comprehensive Economic Partnership (RCEP) signed on 15 November 2020. The complete and up-to-date list of Free Trade Agreements signed by Australia can be consulted here.
 

Main Partner Countries

Main Customers
(% of Exports)
2020
China 40.8%
Japan 12.4%
South Korea 6.5%
United States 5.3%
United Kingdom 4.2%
See More Countries 30.8%
Main Suppliers
(% of Imports)
2020
China 28.8%
United States 11.9%
Japan 6.0%
Thailand 4.8%
Germany 4.6%
See More Countries 43.9%

Source: Comtrade, Latest Available Data

 

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Political Outline

Current Political Leaders
Governor General: David HURLEY (since 1 July 2019)
Prime Minister: Scott MORRISON (since 24 August 2018) - Liberal Party Of Australia
Next Election Dates
Senate: 2022
House of Representatives: 2022
Current Political Context
The prime minister, Scott Morrison, will lead the Liberal-National coalition government until the next election, which is due in 2022 with a series of major challenges in front of him. Australia experienced the worst ever fire season, with a loss of 12 million hectares, and a record-breaking heat wave between the end of 2019 and the beginning of 2020, with every state and territory being affected, tourism areas devastated and damage to the retail, construction and finance sectors. The COVID-19 pandemic made Australia close down its borders from March 2020 to October 2021 and impose strict social distancing rules. The capital cities of Sydney and Melbourne, were again imposed a lockdown of several months in 2021. The crisis has had a profound impact on Australia’s health system, community and economy. Scott Morrison's government has pumped over 147 billion USD in economic stimulus.
2021 was also the second year in a row of increasingly tense relationship with China, Australia's biggest trading partner. A series of defence, trade and foreign policy disputes have led to what is seen by analysts as the lowest point in the two countries’ ties in 50 years. With China accounting for about 35% of Australia’s total trade, some experts fear an all-out trade war could cost the latter 6% of its GDP.
On September 2021, Australia entered a new strategic security pact with the United States and the United Kingdom. The agreement, AUKUS, sets out to deepen defense ties between the three countries by integrating military capabilities across naval, cyber, artificial intelligence, quantum computing and other undersea domains while also setting the stage for an enhanced U.S. force posture in Australia. At the heart of AUKUS is a commitment by the U.S. and the U.K. to provide Australia with at least eight nuclear-propelled submarines that will operate using highly enriched uranium but will not go into service until 2040. This decision, for Australia, to embrace a new alliance with its old allies will have profound implications for its future, in particular in Asia-Pacific.
Main Political Parties
Three parties dominate the political life:
- The Liberal Party: conservative, centre-right, neoliberal
- The National Party of Australia (former Country Party): conservative, centre-right, mostly represents rural interests
- The Australian Labour Party: social democrat, centre-left
- The Greens and Independent members are other popular representatives, and the National Party (conservative) are in a coalition with the Liberal Party.
Executive Power
Australia is an independent nation that belongs to the Commonwealth, and recognises the British Monarch as its sovereign. As such, Queen Elizabeth II is the Head of State. She is represented in Australia by a Governor General who has a symbolic function (they are appointed by her on the recommendation of the Prime Minister). The Prime Minister is the Head of the Government. The Prime Minister runs state business and appoints the Cabinet. The Prime Minister is the leader of the party that wins the majority of seats in the House of Representatives at the General Election.
Legislative Power
The parliament is bicameral and composed of the Senate with 76 members and the House of Representatives with 151 members. Senators are elected for a six-year term, with half of the membership being renewed every three years. Members of the House of Representatives serve terms of up to three years. By Westminster convention, the decision as to the date on which an election is to take place is that of the Prime Minister, who 'advises' the Governor-General to set the process in motion by dissolving the House of Representatives (if it has not expired) and then issuing writs for election. The Prime Minister and the Cabinet are responsible for parliament, of which they must be elected members.
 

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COVID-19 Country Response

COVID-19 epidemic evolution
To find out about the latest status of the COVID-19 pandemic evolution and the most up-to-date statistics on the COVID-19 disease in Australia, please visit the Coronavirus (COVID-19) current situation and case numbers with the official data. The Australian government publishes daily updates about all issues related to Covid-19, whereas the Department of Health provides health alerts.
For the international outlook you can consult the latest situation reports published by the World Health Organisation as well as the global daily statistics on the coronavirus pandemic evolution including data on confirmed cases and deaths by country.
Sanitary measures
To find out about the latest public health situation in Australia and the current sanitary measures in vigour, please consult the governmental webpage including the up-to-date information on the containment measures put in place and public health recommendations. The Department of Health provides several resources and health alerts.
Travel restrictions
The COVID-19 situation, including the spread of new variants, evolves rapidly and differs from country to country. All travelers need to pay close attention to the conditions at their destination before traveling. Regularly updated information for all countries with regards to Covid-19 related travel restrictions in place including entry regulations, flight bans, test requirements and quarantine is available on TravelDoc Infopage.
It is also highly recommended to consult COVID-19 Travel Regulations Map provided and updated on the daily basis by IATA.
The US government website of Centers of Disease Control and Prevention provides COVID-19 Travel Recommendations by Destination.
The UK Foreign travel advice also provides travelling abroad advice for all countries, including the latest information on coronavirus, safety and security, entry requirements and travel warnings.
Import & export restrictions
For the up-to-date information on all the measures applicable to movement of goods during the period of sanitary emergency due to the COVID-19 outbreak (including eventual restrictions on imports and exports, if applicable), please consult the website of the Australian Border Force.
For a general overview of trade restrictions due to COVID-19 pandemic, please consult the section dedicated to Australia on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.
Economic recovery plan
For information on the economic recovery scheme put in place by the Australian government to address the impact of the COVID-19 pandemic on the Australian economy, please visit the website of the Treasury.
For a general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) taken by the Australian government to limit the socio-economic impact of the COVID-19 pandemic, please consult the section dedicated to Australia in the IMF’s Policy Tracker platform.
Support plan for businesses
For information on the local business support scheme established by the Australian government to help small and medium-sized companies to deal with the economic impacts of the COVID-19 epidemic on their activity, please consult the Australian government website Coronavirus information and support for business. Further info can be sourced on the website of the Treasury.
For a general overview of international SME support policy responses to the COVID-19 outbreak refer to the OECD's SME Covid-19 Policy Responses document.
You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.
Support plan for exporters
For the up-to-date information on possible support plans for exporters in Australia, if applicable, please consult the website of the national export promotion agency Austrade, as well as the Australian government Business platform. Further info can be sought on Export Finance Australia's website.
 

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