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Country Profile – Australia

• Consumer spending is a vital component to the growth outlook of Australia, accounting for 60% of GDP. Household spending is growing at just over 1% annually, its lowest rate of growth since early 2009, and growth will remain low in 2020-21.
• Australia’s exports surged at a CAGR of 2% from 2014 till 2018, while its imports remained sluggish, growing at a CAGR of 0.08%. Total trade basket of Australia is US$ 481.1 billion.
• In 2018, India’s exports to Australia stood at US$ 3.73  billion and imports stood at US$ 14.1 billion. India’s exports from 2014 to 2018 increased at a CAGR of 9.5% and imports surged at a CAGR of 11.9%.
• Since Australia is a seasoned economy in dairy, wine, meat and processed agro sectors it could help India fetch similar productivity by exporting technology and skills and developing infrastructure as opposed to directly seeking market access,

An economy with highest median per capita of wealth among adults, the Australian economy is estimated to have a GDP size of US$ 1.44 trillion at nominal prices. Australia’s per-capita GDP is higher than that of UK, Canada, Germany and France in terms of purchasing power parity. In terms of per capita GDP (PPP) Australia is ranked 20th in the world. The country’s sovereign credit rating is “AAA” for all three major rating agencies, higher than the US.

Australia has the eighth-highest total estimated value of natural resources in the world. Despite the recent decline in the mining sector, the Australian economy has remained resilient and stable and has not experienced a recession since July 1991. The economy is more diversified than its export basket might suggest, with the combined services sector accounting for over three-quarters of real industry output. The services sector’s significant contribution to output is the result of Australia’s successful transition to broader-based drivers of economic growth. Adjustments in interest rates, changes in the Australian exchange rate, and moderate wage growth are all working to shift resources from mining-related sectors to service sectors.

Business investment declined in 2019 but the outlook for business investment is mixed. Mining investment is rising again after declining for the past six years. However, mining is now only 2% of GDP whereas at its peak it was 7% of GDP so rising mining investment will not add as much to growth as it did at its peak. Non-mining business investment has been tracking at around 4.5% of GDP for the past 8 years and the forward-looking capex survey indicates that non-mining business investment is likely to be flat or fall slightly over 2019-20.

Consumer spending is a vital component to the growth outlook, accounting for 60% of GDP. Household spending is growing at just over 1% annually, its lowest rate of growth since early 2009, and growth will remain low in 2020-21. The household savings ratio has fallen from 8% in 2015 to 4% in 2019 as households dipped into savings to finance spending. With household debt already being elevated and much higher compared to global peers, further increases in household debt will be smaller while wages growth is low. Serviceability of debt isn’t a major problem for now as interest rates are so low. Public investment growth is strong with the government undertaking significant transport infrastructure spending over the past five years. Government budgets indicate that public investment growth will be contributing to GDP until a peak around 2021-22.

Macroeconomic Indicators

GDP at nominal prices US$ 1.42 trillion
GDP at PPP US$ 1.38 trillion
GDP growth rate 1.9%-2%
GDP per capita at nominal prices & PPP US$ 56,420 & US$ 52,383 respectively
Inflation 1.3%
FDI US$ 62 billion in 2018
Poverty 12.4%
Ease of doing business rank 14th
HDI score & rank 0.938
Contribution of Agriculture, Industry & Services in GDP in % terms 2.7%, 24.8% & 66.56%

Source: Collected from various sources like IMF Statistics, World Bank, UNCTAD statistics

Trade outlook of Australia

Source: ITC Trade Map

Australia’s exports from 2014 surged by 2% of CAGR till 2018, while its imports just remained sluggish by crawling at the CAGR of 0.08%. Total trade basket of Australia is US$ 481.1 billion. Major export destination of Australia are China, Japan, South Korea, India, USA, Hong Kong and New Zealand. On the other hand, major importing destinations of Australia include China, Japan, USA, Germany, Thailand, Malaysia & South Korea.

Trade Basket of Australia

Major exports Major imports
Coal Petroleum & oil
Iron Ores Automobiles
Petroleum Gas & Hydrocarbons Telephone sets
Plated Gold Automatic Data Processing Machines
Aluminium Oxide and Aluminium Hydroxide Medicaments
Copper Ores and Concentrates Gold

Source: ITC Trade Map

Australia currently has 11 free trade agreements (FTAs) in force with 18 World Trade Organization members. The countries covered by these FTAs account for almost 70% of Australia’s total trade. With several FTAs under negotiation, the expanding network of agreements will provide a greater range of trade and investment opportunities and improve Australia’s position to take advantage of growth in the Asia-Pacific region. Investment frameworks established by these agreements also support a more attractive and predictable investment environment and help drive further economic integration in the Asian region.

India-Australia cultural relations

The India-Australia bilateral relationship has experienced dynamic evolution in developing along a positive track, into a friendly partnership. The two nations have much in common, underpinned by shared values of a pluralistic, commonwealth traditions, expanding economic engagement and increasing high level interaction. The long-standing people-to-people ties, ever increasing Indian students coming to Australia for higher education, growing tourism and sporting links, especially Cricket and Hockey, have played a significant role in further strengthening bilateral relations between the two countries.

India-Australia Trade Relations

Source: ITC Trade Map

The India-Australia economic relationship has grown significantly in recent years. India’s growing economic profile and commercial relevance to the Australian economy is recognized, both at the federal and state level in Australia. In 2018, India’s exports to Australia stood at US$ 3.73 billion and imports stood at US$ 14.1 billion. India’s exports from 2014 to 2018 increased by a CAGR of 9.5% and imports surged by 11.9% CAGR. India’s main exports to Australia are passenger motor vehicles & machinery; pearls, gems and jewellery, medicaments and refined petroleum while major imports are coal, non-monetary gold, copper, wool, fertilizers and education-related services. Major export areas from India’s perspective are as follows:

• Precious and semi-precious stones
• Floor coverings
• Textile
• Processed Agricultural products
• Leather and leather goods
• Furniture & office related products
• Kitchen and Toiletries items

Around 100 Australian companies have set up offices in India, which has given a major boost to India-Australia trade relations. Some of the important ones are TNT express (courier services), Rio Tinto (mining), Telstra (telecommunications), Snowy Mountain Engineering Corporation (infrastructure development), Argyle Diamonds (technical support office for diamond sales), BHP Billiton (mining), ANZ (IT), and Fosters (brewery).

India-Australia CECA

Australian trade negotiators are perpetually demanding market access to Indian dairy, wine, meat and processed agro sectors which is one of the main reasons for the impasse in India-Australia CECA. India is naturally concerned about allowing Australia’s exports to India in the mentioned sectors, as it could hamper the welfare of domestic industry and their survival will at stake.

Old route of negotiations has to be modified to reap gains post trade agreement. Inception of WTO was also aimed to enhance welfare of member economies through trade. Similar to BoT (Build operate & transfer), which is implemented in India’s construction sector, there could to be an analogous policy instrument while negotiating trade agreements. This basically indicates the assistance, and nurturing the enervated industries of the respective economies via importing technology and training.

Since Australia is a seasoned economy in the discussed germane sectors, it could assist India to fetch the similar productivity by exporting technology and skills and developing infrastructure, instead of directly asking for market access for a stipulated time frame. For example, to develop India’s processed dairy, meat, wine and horticulture sectors, Australia could assist in implanting technology, which will facilitate our manufacturers and exporters to link into global value chains, leading to a boost in productivity and efficiency of the sector, and the skills of workers. It helps focus production on capitalizing on imminent global demand. Being disconnected from these global realities is not a recipe for business success.

As a reciprocal gesture, India could offer land, economical labor and incentivise trade policies like national treatment of manufactured products. It could take a cue from Brazil, which evolved as a veteran exporter after facing tremendous rejections from EU in early 1980s. They have invested near about two decades to improve their quality. It is an opportune time for India to take the leap, and the trade agreement could be reoriented so that both India and Australia benefit.

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