Australia flag Australia: Economic and Political Overview

The economic context of Australia

Economic Indicators

The Australian economy experienced 27 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. After growing by 3.7% in 2022, the Australian economy's growth stayed below its usual pace in 2023 (+1.8%) due to persistent cost-of-living pressures and increased interest rates, which dampened demand. The main drivers of growth were elevated net migration, resilient private investment, and strong public investment in transport, health, education, and national defence. Economic activity is forecasted to continue slowing down in the short term; consequently, growth is anticipated to decrease to approximately 1.2% in 2024 before it picks up to 2% the following year (IMF).


Monetary policy has significantly tightened in 2023, marked by a cumulative increase of 400 basis points in interest rates since early 2022. Additionally, the fiscal deficit has shrunk more rapidly compared to other advanced economies, standing at 1.6% of GDP in 2023, largely owing to a spike in tax receipts from businesses and households. Nevertheless, the IMF expects it to widen to 2.3% this year. While the anticipation of increased debt servicing is likely to drive up spending during the 2023-2024 financial year, tax reforms - especially the planned reduction in income tax set to take effect in July 2024 - will partially counterbalance this rise. Consequently, this gradual fiscal consolidation is expected to stabilize the government debt ratio over the medium term. Moreover, the proportion of Australian public debt held by non-residents, currently around 45%, has been decreasing since 2020. Overall, the debt-to-GDP ratio was estimated at 51.9% in 2023. Headline inflation dropped to 5.8% in 2023, down from its peak of 7.8% in Q4 2022, surpassing the Reserve Bank of Australia’s (RBA) target range of 2-3%. Services inflation persists despite a reduction in global supply chain pressures and a domestic demand slowdown due to tighter monetary policy, which have contributed to a decline in goods inflation. Despite recent moderation, services inflation remains elevated and widespread, fueled by robust demand, increased input costs from both labour and non-labor factors like rent and electricity, and supply constraints. The IMF expects inflation to decrease gradually over the forecast horizon, to 3.4% in 2025.

The short-term projection for employment growth has been adjusted upwards by the Reserve Bank of Australia due to the improved forecast for domestic activity and the expectation of stronger growth in the working-age population in the coming year. Employment is anticipated to continue expanding over the next few years, and a significant portion of the labour market adjustment to below-trend economic growth is anticipated to happen through a reduction in average hours worked. During 2023, unemployment averaged 3.7%, in line with the previous year, although it is seen to rise to 4.3% in 2024. In general, Australians enjoy a high standard of living, with GDP per capita (PPP) estimated at USD 64,675 in 2023 by the IMF. Nevertheless, according to the Council of Social Services’ “2022 Poverty in Australia Snapshot”, 3.3 million people (13.4% of the population) live below the poverty line of 50% of median income, including 761,000 children (16.6%).

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 1,724.921,741.881,790.351,863.241,940.48
GDP (Constant Prices, Annual % Change) 3.82.11.52.02.2
GDP per Capita (USD) 65,57565,43466,58968,61470,751
General Government Balance (in % of GDP) -2.3-1.1-1.5-1.5-1.1
General Government Gross Debt (in % of GDP) 50.149.449.649.348.8
Inflation Rate (%) 6.65.63.53.02.7
Unemployment Rate (% of the Labour Force) 3.73.74.24.54.6
Current Account (billions USD) 18.3221.238.61-3.79-10.25
Current Account (in % of GDP) 1.11.20.5-0.2-0.5

Source: IMF – World Economic Outlook Database, October 2021

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 industrial sector is characterised by high productivity levels, with 75% of the industries rating above the global average. The secondary sector employs 19% of the workforce and contributes to just over a quarter of the GDP (25.5% - World Bank, latest data available). The manufacturing industry is built around the food industry (27% of the workforce), 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 employs 2% of the workforce and contributes 2.7% of 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 2023, 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 it was the first Australian commodity to reach the AUD 100 billion mark in annual export value. 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. According to the latest official government data, Australian agriculture production is forecast to fall in 2023-24 as increasing global supply and drier conditions impact farmers. The total value is projected at AUD 78 billion as drier conditions impact record-high crop production levels, AUD 16 billion lower than estimated production values for 2022–23 but still the third-highest result on record.

The services sector occupies a dominant position in the Australian economy, contributing to 63.3% of the GDP and employing over 79% of the workforce (World Bank). 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 made a fundamental contribution to growth. Travel services, such as education-related travel, recreational travel and business travel services have also been growing significantly. The banking sector is dominated by four major banks: Commonwealth Bank, Westpac, Australia & New Zealand Banking Group and National Australia Bank.

 
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. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
82,4/100
World Rank:
3
Regional Rank:
3


 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
8.35/10
World Rank:
6/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Country Risk

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Sources of General Economic Information

Ministries
Official list of ministries
Department of Foreign Affairs and Trade (DFAT)
Australian Government Agriculture Portal
Minister for Finance and Deregulation
Ministers for Innovation, Industry, Science and Research
Australian Bureau of Agricultural and Resource Economics (ABARE)
Statistical Office
Australian Bureau of Statistics
Central Bank
Reserve Bank of Australia
Stock Exchange
Australian Stock Exchange
Economic Portals
 

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Latest Update: March 2024