Australia

Troubled waters

AA1

LOW RISK for entreprise

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

GDP USD1323.4bn (World ranking 13, World Bank 2017)
Population 24.6mn (World ranking 53, World Bank 2017)
Form of state Federal Parliamentary Democracy (Commonwealth)
Head of government Scott MORRISON (PM)
Next elections 2019, Senate and House of Representatives
  • Large natural resource endowments
  • Strong infrastructure and business environment
  • Proximity with Emerging Asia
  • Low public debt
  • Top touristic destination
  • Dependent on Chinese demand and commodity prices evolution
  • High exposure to a change in climate and to natural hazards
  • External vulnerabilities stem from chronic current account deficit and high external debt
  • High household debt

Cooling but not crashing

Australia’s economic growth is set to slow to +2.2% in 2019 (after +2.8% in 2018). Lower growth in demand from main partners - especially China - will be a drag on exports. Cooling housing markets and high leverage will continue to hinder private consumption as households become more cautious. Some support will come from fiscal policy in the form of infrastructure spending, tax breaks and social transfers, and from a still accommodative monetary policy. Excluding the mining and the real estate sectors, investment is also set to get some traction, benefitting from still ample corporate profits, favourable taxation and higher demand for infrastructure and services.  Services exports in particular (tourism and education) are expected to gain further momentum, helped by stronger demand from Asia-Pacific neighbours.  

Sound policies will help the economy sustain growth momentum

The Reserve Bank of Australia is set to maintain its accommodative policy stance in 2019. Firstly, inflation is weak (+1.3% in Q1 2019), clearly below the central bank’s target.  Secondly, economic growth is still on a fragile path with mounting risks on both external and domestic fronts. Against this backdrop, a policy rate cut of -25bp is becoming more and more likely. Meanwhile, authorities are expected to maintain their tough stance to curb financial vulnerabilities (e.g. high household debt and low housing affordability) with (still) tight bank lending standards and stronger supervision. Such an approach associated with a solid financial system will help keep financial risk at bay.

Australia’s public finances are strong compared to other advanced economies. Debt is relatively low (c. 41% of GDP). The commonwealth government deficit was moderate at around -0.3% of GDP in fiscal year (FY) 2018-19. Looking ahead, the fiscal stance will be expansionary. The authorities are stepping up infrastructure spending, and enacting supportive measures for corporates (lower corporate tax for SMEs) and households (cut in personal income taxes).

The business environment is attractive. The country is ranked 18th among 190 economies in the World Bank Doing Business survey. The survey reveals a strong positioning on aspects such as starting a business, enforcing contracts and dealing with construction permits. The trading environment is also conducive considering the strategic positioning of the economy within the Asia-Pacific region and the political links that it has with the U.S. Australia is also involved in mega trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (already launched) and the Regional Comprehensive Economic Partnership (in negotiation). 

External risks are manageable

The large current account deficit was reduced below -3% of GDP in 2017 and 2018, helped by better terms of trade and stronger sales of resources products and services. At over 100% of GDP, external debt remains a source of vulnerability. However, policy buffers such as low public debt, favorable investor confidence and a relatively positive economic outlook (compared to other high-income economies) provide some cushioning. 

Trade structure by destination/origin

(% of total)

Exports Rank Imports
China 32%
1
23% China
Japan 16%
2
11% United States
South Korea 7%
3
7% Japan
United States 5%
4
5% South Korea
India 4%
5
5% Thailand

Trade structure by product

(% of total)

Exports Rank Imports
Metalliferous ores 28%
1
12% Road vehicles
Coal, coke and briquettes 15%
2
11% Petroleum
Gas 7%
3
6% Other industrial machinery
Gold, non-monetary 6%
4
5% Telecommunication
Meat 5%
5
5% Electrical machinery

The payment behavior of domestic companies is good compared to international standards. However, delays are registering a deteriorating trend and average DSO now stands at 50 days.

  • Low

  • Medium

  • Sensitive

  • High

  • Payments

  • Court proceedings

  • Insolvency proceedings

The court system is complicated by the country's federal structure and provides no fast-track proceedings for the settlement of undisputable claims. The courts are otherwise efficient, but delays and costs tend to be significant and enforcing foreign judgments may prove difficult

Insolvency proceedings are complex and expensive, and chances of recovery are very low.

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