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Australia is the 13th largest economy in the world in terms of nominal gross domestic product (GDP) in 2022 with about $1.32 tn. The country holds the record for the longest uninterrupted GDP growth of almost 30 years, which ended when it fell into recession in the second quarter of 2020, due to the Covid-19 pandemic.
As per the International Monetary Fund (IMF), unprecedented macro policy stimulus and relatively quick suppression of the virus in 2020 helped the Australian economy recover strongly from the recession induced by the pandemic.
Thus, Australia registered a GDP growth of 4.9% in 2021. Last year, Australia grew 3.7% and for 2023, IMF predicts a growth rate of 1.6%.
Australia GDP Annual Growth Rate (in %)
Viewed historically, the Australian economy was known as heavily dependent on agriculture, particularly wheat, beef, lamb, dairy produce, and several irrigated crops. Following World War II, its manufacturing and services sectors began growing as mineral exploitation in the country developed. Australia started undergoing economic liberalization in the early 1980s.
Australia’s population is around 26.2 million, and 89% of its people can be found in many urban areas. Over 7.6 million migrants are living in the country, and more than a third of its annual population growth is due to net overseas migration.
The unemployment rate for 2021 fell by 0.5 percentage points to 4.2%, the lowest recorded since August 2008. Whereas, the full year of 2022 saw an unemployment rate of 3.7%. Several market analysts estimate the unemployment rate to go up again by almost a percentage point in 2023 due to the economy slowing down. IMF predicts 4%.
Australia Unemployment rate
Currency and Central Bank
The Australian dollar or AUD is the official currency of Australia and its external territories, namely Christmas Island, Cocos (Keeling) Islands, and Norfolk Island. People use the dollar sign ($) within the country but add an A or AU before distinguishing it from other dollar-denominated currencies.
The AUD is the fifth most traded currency globally, behind the US dollar, euro, Japanese yen, and UK pound sterling.
The Reserve Bank of Australia (RBA) has been the country’s central bank since 1960. Before the Reserve Bank Act 1959, the Commonwealth Bank of Australia had central banking functions.
Australia Inflation (in %)
Inflation in Australia was rising throughout 2022. In the third quarter, inflation hit 7.3% year-on-year. According to an analysis by ING, most of Australia’s inflation comes from goods rather than the service sector. The bank thinks that it has peaked and will now “slow quite rapidly”.
Australia saw an inflation rate of 6.6% in 2022, while IMF expects an inflation rate of 5.3% for 2023.
Industry and Trade
Australia’s economy is dominated by its service sector, which contributes about 65% to the GDP and employs 88.6% of its workforce. Furthermore, financial services, healthcare & education, mining, construction and manufacturing count among the leading growth sectors of Australia’s economy.
Mining represented 14.6% of GDP and employed 2.1% of Australians in 2022, whereas health and education add 13%, finance 7.6% and construction 7.3% to the economy.
The gross value added by the manufacturing sector is 5.8%, it employs 6.3% of the labour force as of 2022. Food, machinery and equipment, metal processing and metal goods, chemical and petrochemical, and building materials production are among the top industries in Australia.
Australia’s agricultural and mining sectors are the most critical for exports, with iron and coal begin the country’s most important exports. In addition to this, Australia is also one of the leading exporters of meat and wheat in the world.
Australia ranks 22nd worldwide in total exports and its main export products include iron ore, coal briquettes, natural gas, gold and education-related travel services. The country’s main export partners are China, Japan, South Korea, India, and the US.
Australia Economy: Balance of Trade
On the other hand, Australia is the 24th biggest importer globally and its top import products include refined petroleum, cars, crude petroleum, broadcasting equipment, and delivery trucks. Its main import partners are China, the US, Singapore, Japan, and Germany.
Stock Exchanges and Capital Markets
Australia’s primary securities exchange is the Australian Securities Exchange or ASX, which is the 16th largest in the world in terms of market capitalization. The ASX was formed following the merger of the Australian Stock Exchange and the Sydney Futures Exchange in July 2006.
It offers diverse asset classes and services, including equities, debt securities, derivatives, and commodities.
Maintained by Standard & Poor’s, the market-capitalization weighted and float-adjusted S&P/ASX 200 index is considered the benchmark of the ASX. The largest companies that make up the index include the healthcare firm CSL Ltd., Commonwealth Bank of Australia, and BHP Group Ltd, a leading global resources company.
Bond Market
Australia’s financial markets are well-developed. The bond market is clustered in government, municipal and corporate bonds. Available are Australian Government Bonds (AGBs) and Exchange-traded Australian Government Bonds (eAGBs) which are represented by exchanged-traded Treasury Bonds (eTBs) and exchange-traded Treasury Indexed Bonds (eTIBs).
Australia’s Government also issues Treasury Notes with a maturity of usually lesser than 6 months. All government bonds are denominated in Australian dollars.
The corporate bond market is divided into Australian financial institutions, Australian corporate’s (non-financials), Long-dated asset-backed securities and “Kangaroo” bonds (issued by non-residents in the Australian domestic market, denominated in AUD).
Australia’s non-government bond market is significantly larger than its government bond market.
Real Estate Market
A key issue in the Australian real property market is affordability. House prices, which were four times the average household income in 1990, jumped to six times by 2011. This was due to high levels of immigration and the tendency of new immigrants to stay in capital cities.
Australia House Price Index (in %)
Moreover, the government’s decision to loosen rules for foreign investment in real property in 2008 contributed to the affordability problem. In Australia, foreigners are allowed to buy residential properties, subject to the approval of the Foreign Investment Review Board (FIRB).
However, in 2022, the housing market registered its first year-on-year decline since 2018. Housing prices were down 5.3%, according to CoreLogic, but still well above pre-Covid levels.
As per the IMF, housing investment remains higher in Australia compared to peers, reflecting Australia’s relatively high population growth.
Sources of Charts: tradingeconomics.com
