2 September 2015
If you are planning on emigrating to Australia, you will obviously be keen to understand how the economy is performing. Getting a job in Australia will be made a lot easier if the economy is performing well.
However, recent headlines have painted a picture which seems pretty grim. Australia’s vast commodity sector has been the mainstay of an unprecedented period of economic growth which has transformed Australia into a wealthy, dynamic country. Through to the end of June 2015, Australia has experienced 24 years without a recession (defined as 2 consecutive quarters of contraction).
As the Treasurer, Joe Hockey, said in a press conference, “At a time when other commodity based economies like Canada and Brazil are in recession, the Australian economy is continuing to grow.
So why the gloomy headlines? The latest release by the Australian Bureau of Statistics (ABS) shows that GDP growth in Q2 came in at 0.2% (2% for the year to June), down from 0.9% in Q1. This was the lowest level since 2013. However, in the context of considerable uncertainty surrounding the outlook in China, perhaps still positive growth can be considered to be an achievement for the economy.
The accompanying release by the ABS gave a more nuanced view though. The released figures are adjusted for inflation and don’t look too bad but the nominal figures were worrying.
‘GDP growth for 2014-15 was 2.4%. Nominal GDP growth was 1.8% for the 2014-15 financial year. This is the weakest growth in nominal GDP since 1961-62.’
Michael workman, a senior economist with the Commonwealth Bank of Australia feels that it is the external sector of the economy i.e. commodity prices and the growth rates of Australia’s major trading partners that will continue to drag on growth.
“Looking ahead, it is clear that Australia’s external environment, namely commodity prices and trading partner growth, will present challenges over coming years”, says Workman, adding “lifting national incomes will require some consistent economic reforms aimed at lifting national productivity and enhancing competitiveness”.
The release by the ABS provided evidence for this assessment:
‘Net exports detracted 0.6 percentage points from GDP growth in the quarter, through the year they added 1.1 percentage points to GDP growth.’
Net exports are the difference between exports and imports of goods and services. The Terms of trade, or the relationship between the price of exports and imports has changed dramatically in recent times, reflecting the weakening in prices of Australia’s main commodity exports.
The economic slowdown has also seen unemployment climb to over 6%, a 20-year high.
What is clear is that the much talked about rebalancing away from the commodity sector, which has powered growth for over 20 years, is a long and difficult process. Australia recognises that it needs to diversify its economy and, through a series of economic reforms help lift productivity and boost the service and manufacturing sectors. In the face of the economic storms engulfing China, by far Australia’s largest trading partner, it could be argued that, relatively, Australia has done well to avoid falling in to recession.
Longer term, the outlook is still positive and the requirement for skilled migrants remains. To allow Australia to truly compete with other developed nations, it needs a bigger, more productive population to help boost domestic production, allowing greater internal economies of scale, a more competitive domestic market and a greater economic footprint on the world stage.
With a third of the population having been born overseas according to the ABS, immigration has been, and will remain, vital to the Australian economy.