Economy of Australia

Economic Profile

Australia has a prosperous, Western-style capitalist economy, with a per capita GDP similar to those of the UK, France and Germany. The Australian economy is dominated by its services sector (65% of GDP), yet it is the agricultural and mining sectors (7% of GDP combined) that account for 58% of its exports. Rich in natural resources, Australia is a major exporter of agricultural products, particularly grains and wool, and minerals, including various metals, coal, and natural gas. A downturn in world commodity prices can thus have a large impact on the economy.

The government is pushing for increased exports of manufactured goods, but competition in international markets continues to be severe. Australia's comparative advantage in primary products is a reflection of the natural wealth of the Australian Continent and its small domestic market; 20.3 million people occupy a continent the size of the contiguous United States. The relative size of the manufacturing sector has been declining for several decades, and now accounts for just under 12 percent of GDP.

Australia's emphasis on reforms is key factor behind the continuing strength of the economy. In the 1980s, the Australian Labor Party, led by Prime Minister Bob Hawke and Treasurer Paul Keating, commenced the modernisation of the Australlian economy by floating the Australian dollar in 1983, leading to full financial deregulation.

Microeconomic Reform in the 1990's

Other key reforms include unilaterally reducing high tariffs and other protective barriers; floating the Australian dollar exchange rate; deregulating the financial services sector-- including a decision in late 1992 to allow liberal access for foreign bank branches; rationalizing and reducing the number of trade unions; efforts to restructure the highly centralized system of industrial relations and labour bargaining; better integrating the State economies into a national federal system; improving and standardizing the national infrastructure; and privatizing many government-owned services and public utilities.

Since 1996, the Coalition government, led by Prime Minister John Howard, continued to implement microeconomic reform policies. The microeconomic reforms of the Howard government have focussed on the labour market, and has attempted to reduce union power and involvement in the workplace. The Coalition government deregulated numerous other industries, including the telecommunications sector, and privatised many of the pre-existing monopolies. Since the recession of the early 1990s, the Australian economy has not suffered a recession in over 13 years. As of October 2004, unemployment had fallen to a level of 5.2 per cent, the lowest level since the late 1970s. The price of shares listed on the Australian Stock Exchange has also grown significantly since the early 1990s.

Many raw materials (including resources postulated to exist but yet to be discovered) remain mostly unexploited. Economists often refer to Australia as the "world's farm". The agriculture and natural resources sectors contribute significantly to GDP, both directly and indirectly, through associated services like road and rail transport networks, which in some areas exist entirely based on an industrial need, and supporting rural economies. In recent years the Australian government has been focusing on the development of the tourism, education and technology markets. The Australian government funds scientific research and development through universities, the Commonwealth Scientific and Industrial Research Organisation (CSIRO), and through joint ventures between the public and private sectors called Cooperative Research Centres.

Future Economic Progress

The ultimate goal is for Australia to become a competitive producer and exporter, not just of traditional farm and mineral commodities, but of a diversified mix of value added manufactured products, services, and technologies. While progress has been made on this economic reform agenda--such as in opening the telecommunications market to competition--much remains to be done, particularly in the domestic arena.

While the near-term outlook is for continued economic expansion, Australia's longer term prospects depend heavily on continued fundamental economic reform. There is a general consensus among the major political parties, management, and labour on the necessary features of this reform but significant divergence of views on the methods, pace, and degree of change required.

The influence of China's economic growth has also fuelled Australia's export growth in mineral and energy resources, with the recent Western Australian Liquified Natural Gas contract worth potentially $25 billion over the life of the project [1]. China's industrialisation has resulted in an export boom for resource corporations, and thus contributed to increasing the Australian Federal Government's revenue stream from increased Company Tax takings. Australia's trade with China is currently the fastest growing in the past decade, to become the third largest trading partner overall.

Recent changes by the Coalition Government on industrial reform, with particular regards to new laws for liberalising workplace contracts for small businesses under 100 employees, has resulted in some discontent among union groups and employee advocates. Critics argue that the laws will result in reduced worker entitlements in return for nominal financial compensation, which will thus impact on the social needs of individuals. Businesses welcome the change as a need to improve workplace productivity, and believe it will benefit the Australian economic output as a whole, thus resulting in real wage increases.

The privatisation of Telstra will also be a major agenda for the government, potentially worth AUD$30 billion, as it seeks to retire public debt and build upon successive federal surpluses for a future capital reserve. Telstra's privatisation is undergoing numerous consultations with various lobby groups, particularly rural areas which expect funds to be allocated for improving rural telecommunications infrastructure. Various proposals for privatisation to improve competition of Telstra's natural monopoly over fixed lines, including the separation of Telstra's wholesale communications and its retail division, has been seen as unsatisfactory by the current Telstra board for maximising the final share price.

Other Economic Indicators

Industrial production growth rate: -0.1% (2004 est.)

Electricity: Electricity - production:

• production: 198.2 billion kWh (2001)
• consumption: 184.4 billion kWh (2001)
• exports: 0 kWh (2003)
• imports: 0 kWh (2003)

Electricity - production by source:

• fossil fuel: 89.85%
• hydro: 8.35%
• nuclear: 0%
• other: 1.8% (1998)

Electricity - consumption:

• Electricity - exports: 0 kWh (1998)
• Electricity - imports: 0 kWh (1998)

Agriculture - products: wheat, barley, sugarcane, fruits; cattle, sheep, poultry

Exports - commodities: coal, gold, meat, wool, aluminum, iron ore, wheat, machinery and transport equipment

Imports - commodities: machinery and transport equipment, computers and office machines, telecommunication equipment and parts; crude oil and petroleum products

Australian dollars per US dollar: 1.5419 (2003), 1.8406 (2002), 1.9334 (2001), 1.7248 (2000), 1.55 (1999), 1.5888 (1998), 1.3439 (1997), 1.2773 (1996), 1.3486 (1995)

References

• Parham, D. (2002). Microeconomic reforms and the revival in Australia’s growth in productivity and living standards. Conference of Economists, Adelaide, 1 October
• Macfarlane, I. J. (1998). Australian Monetary Policy in the Last Quarter of the Twentieth Century. Reserve Bank of Australia Bulletin, October
• Template:CIA WFB 2000
• Some information in this article comes from the 2003 U.S. Department of State website.
• Harcourt, T. (2005). How the LNG deal was won. Australian Trade Commission Public Relations

See also

• Australia