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Economic and political overview

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 was 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 4.9% and then 3.9% in 2022. 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 reach 1.9% in 2023 and then 1.8% in 2024 (IMF Economic and Political Outlook, October 2022). 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. The end of border restrictions is slowly fuelling the recovery in education and tourism exports.

In 2022, the inflation rate in Australia was 6.5%, a rate that is expected to come back to 4.8% in 2023 and 2.9% in 2024 according to the latest World Economic Outlook from the IMF (October 2022). Due to the COVID-19 crisis, the government budget balance showed a large deficit in 2021 (-6.2 % of GDP) which came back in 2022 to -3.5%. It is forecasted to stabilise at -3.1% in 2023 and -2.6% in 2024. IMF evaluated the 2022 government debt at 56.7% of GDP, expecting it to reach 58.6% and 60.5% in 2023 and 2024 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 was 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. 2022 was a year of a renewed dialogue with China, in a context of tense relationship with this country, Australia's biggest trading partner.

The unemployment rate was quite low until the pandemic (5.2%) but picked at 6.5% in 2020 before coming back to 5.2% in 2021 an 3.6% in 2022. The IMF expects the unemployment rate to reach 3.7% in 2023 and 4.2% in 2024. 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 extreme weather events like floods and droughts putting an unprecedented stress on the Australian agriculture. The country is also one of the largest Co2 polluters per capita in the world.

In 2023, the country’s most immediate challenge will be to navigate the volatile international context, facing steep challenges against a backdrop of the persistent health and economic overhang of a global pandemic and a war in Europe, a cost-of-living crisis caused by persistent and broadening inflation pressures, and the slowdown in China.

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 1,702.551,687.711,685.671,780.931,870.76
GDP (Constant Prices, Annual % Change) 3.71.81.22.02.2
GDP per Capita (USD) 64,81463,48762,59665,31767,798
General Government Balance (in % of GDP) -2.5-1.6-2.3-1.9-1.4
General Government Gross Debt (in % of GDP) 50.751.955.656.356.3
Inflation Rate (%) n/a5.84.03.43.1
Unemployment Rate (% of the Labour Force) 3.73.74.34.54.8
Current Account (billions USD) 18.3610.38-11.89-14.37-15.27
Current Account (in % of GDP) 1.10.6-0.7-0.8-0.8

Source: IMF – World Economic Outlook Database , October 2021

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, 2023) 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 2022), 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, 2022).

Agriculture employed 2.5% of the workforce in 2022 and contributed 2.3% to the GDP (World Bank, 2023). 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 in 2022, and the second of gold and uranium, 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 72.2% to the GDP and employing over 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.

Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades. The cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook.  Global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023, the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic. Global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022 but to decline to 6.5 percent in 2023 and to 4.1 percent by 2024 (International Monetary Fund - IMF, 2023). The impact of the 2022 world events appears to have affected both sides of most sectors and markets in this country for the third year in a row - demand disruptions having run up against supply problems - making the short-term outlook uncertain for agriculture, industry and service sectors.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 2.4 18.8 78.8
Value Added (in % of GDP) 3.2 27.9 62.4
Value Added (Annual % Change) 23.4 1.7 4.3

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 40% of its GDP in 2022 (World Bank, 2023). It had the 12th freest economy in the world in 2022, placing its trade freedom as one of the highest worldwide (The Heritage Foundation, 2023). The country mainly exports iron ores slag and ash (38% of total exports), mineral fuels, oils, distillation products (28%), gold and other precious stones, metals, coins and pearls (5.5%), meat and edible meat offal (3.2%). On the other hand, its main imports include machinery (15%), Vehicles other than railway and tramway (13%), Electrical and electronic equipment (11%), Mineral fuels, oils, distillation products (10%) and pharmaceutical products with 4,2% of total imports (Trading Economics, 2023).

Its main partners are China, Japan, South Korea, India, the USA, New Zealand, and Vietnam (World Bank, 2023). 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, the European Union and Australia opened free trade negotiations in 2018 and have held 13 rounds of talks. But a deal has been held up by EU concerns over Australia's climate change commitments and a bust-up over Canberra's cancellation of a submarine contract with France in 2021. Australia is pushing to seal a free trade agreement with EU authorities in the first half of 2023. 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 (Source: DFAT Trade and Investment publications and articles, accessed January 2022). 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. This record was again broken in 2021 with 91.95 billion AUD (Source: DFAT Trade and Investment publications and articles, accessed January 2023). Most of this trade is with Asia. 12 of Australia’s 15 largest trading partners are within the Asia region.

In 2021, Australia exported AUD 344.82 billion of goods and services (USD 240,8 billion), a 7,4% increase compared to the previous year (WTO, 2023). Seasonally adjusted, as of November 2022, Australia's trade balance was $13,201 millions (DFTA, 2023).

 
Foreign Trade Values 20182019202020212022
Imports of Goods (million USD) 235,386221,564211,824261,165309,189
Exports of Goods (million USD) 257,098271,005250,823344,864412,562
Imports of Services (million USD) 74,46271,32239,53741,20363,687
Exports of Services (million USD) 69,10770,65249,43544,39850,610

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

Foreign Trade Indicators 20182019202020212022
Foreign Trade (in % of GDP) 43.445.844.239.945.8
Trade Balance (million USD) 20,83648,09540,51087,478112,397
Trade Balance (Including Service) (million USD) 15,60247,46750,45390,80897,202
Imports of Goods and Services (Annual % Change) 7.00.2-7.0-3.47.1
Exports of Goods and Services (Annual % Change) 4.13.9-1.7-8.4-0.1
Imports of Goods and Services (in % of GDP) 21.521.720.217.819.9
Exports of Goods and Services (in % of GDP) 21.924.224.022.125.8

Source: World Bank ; Latest available data

Foreign Trade Forecasts 2023 (e)2024 (e)2025 (e)2026 (e)2027 (e)
Volume of exports of goods and services (Annual % change) 8.31.82.02.12.2
Volume of imports of goods and services (Annual % change) 4.02.22.42.42.4

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)		 2022
China 24.9%
Japan 12.8%
South Korea 6.0%
India 4.7%
United States 3.0%
See More Countries 48.5%
Main Suppliers
(% of Imports)		 2022
China 27.1%
United States 10.0%
South Korea 6.2%
Japan 5.8%
Singapore 4.5%
See More Countries 46.5%

Source: Comtrade, Latest Available Data

 

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Political Outline

Current Political Leaders
Governor General: David HURLEY (since 1 July 2019)
Prime Minister: Anthony Albanese (since 23 May 2022) - Australian Labour Party.
Next Election Dates
Senate: 2025
House of Representatives: 2025
Current Political Context
On 22 May this year Scott Morrison’s Liberal-Coalition government was defeated in the Federal Election, with Labor leader Anthony Albanese becoming Australia’s new Prime Minister. Polls had predicted a narrow win for Labor, and the Coalition government’s prayers for a (second) “miracle” went unanswered. The Labor Party has since been confirmed as a majority government after almost a decade in opposition. The year 2022 ended on a high for the newly elected Labor Prime Minister Anthony Albanese, with opinion polls showing the Labor government and its leader are only growing in popularity across Australia. The new government spent its first seven months ticking off election promises and recalibrating Australia’s standing on the world stage. But every honeymoon must come to an end and in 2023, the domestic political challenges for the Albanese government will soon loom large with issues like the rising cost of energy, the cost-of-living increases, the imported inflation, housing pressures, industrial relations and tax reform. Labor is also expected to flesh out its climate policy in its May 2023 budget with a stronger focus on cutting carbon emissions. In this respect, Prime Minister Albanese will seek to deliver on his party’s promise to cut emissions by 43% by 2030. This will assist in building cordial relations with US President Biden, with whom he already shares a similar worldview and domestic agenda. Albanese has signalled support for America’s new Indo-Pacific Economic Framework (IPEF). His proactive stance on this issue will come as welcome news to partners in the South Pacific.

In September 2021, Australia entered a new strategic security pact with the United States and the United Kingdom. The agreement, AUKUS, sets out to deepen defence 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.

Reorientation towards western partners will create issues with China, but China's reliance on Australian raw material should temper the antagonism.
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, in a coalition with the Liberal Party.
- The Australian Labour Party: social democrat, centre-left
- The Greens and Independent members are other popular representatives.
Executive Power
Australia is an independent nation that belongs to the Commonwealth, and recognises the British Monarch as its sovereign. As such, King Charles III is the Head of State. He 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

Travel restrictions
Regularly updated travel information for all countries with regards to Covid-19 related entry regulations, flight bans, test and vaccines requirements is available on TravelDoc Infopage.
To find information about the current travel regulations, including health requirements, it is also advised to consult Travel Regulations Map provided and updated on a daily basis by IATA.
Import & export restrictions
A general overview of trade restrictions which were adopted by different countries during the COVID-19 pandemic is available on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.
Economic recovery plan
For a general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) undertaken by the Australian government, please consult the section dedicated to Australia in the IMF’s Policy Tracker platform.
Support plan for businesses
For an evaluation of impact of the Covid pandemic on SMEs and an inventory of country responses to foster SME resilience, 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.
 

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