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If you were to design an economy perfectly tailored to succeed
in the modern global economy, it might look like Australia's. The
country of 23.5 million has vast natural resources, a healthy
democracy, strong population growth, a free market system and one
of the world's best trading infrastructures.
Australia hasn't had a recession in a quarter of a century, and
its gross domestic product is expected to grow by over 2.5% in
2019. In recent years, it's enjoyed lower interest rates, new
building in its gas industry, and continued strong commodity
prices.
Private companies have been investing aggressively in Australia,
which has higher population growth than most Western democracies,
meaning it has a higher ceiling for job growth and returns on
investment. Perhaps most importantly, at a time of rising
protectionism, it has strong alliances with countries all over the
world. Analysts believe that Australia could even benefit from a
trade war.
However, with federal elections looming this year, housing
prices taking a hit, domestic demand in China uncertain, and the
global winds of protectionism chilling the global economy,
Australia could be in for a difficult year. Also, with concerns
rising about carbon dioxide emissions, the outlook for coal, its
main export, is highly variable.
Australia's top trading partner is by far China, which depends
on the country for iron ore, the key ingredient in the making of
steel. For this century so far, Australia has functioned as China's
corner store. When Beijing needs to buy something, it knows it can
run to Australia to get it.
Australia top export destinations, 2018
China $87.6 billion (+15%)
Japan $41.3 billion (+23%)
South Korea $17.7 billion (+13%)
India $12.3 billion (+2%)
US $9.7 billion (+8%)
Hong Kong $7.8 billion (-15%)
Taiwan $7.8 billion (+18%)
Singapore $7.4 billion (+44%)
New Zealand $7.2 billion (+4%)
Malaysia $5.5 billion (+27%)
Australia's top four exports are raw materials, most of which
are headed to plants and furnaces in China via ports in the
northern part of the country.
In particular, Australia has been boosting exports of gas, and
coal, which have increased due to increased demand for power.
Despite coal's environmental issues, it remains the cheapest way of
providing massive amounts of power and thus still account for
around 40% of global electricity.
Australia's gas industry has been growing very fast, thanks to
big investments in new fields, plants and infrastructure. Gas
exports increased by a massive 63% in 2018 compared to the previous
year, and have steadily expanded during this decade.
Australia gas exports
2013: $15.2 billion
2014: $17.1 billion
2015: $12.8 billion
2016: $13.8 billion
2017: $20.2 billion
2018: $33 billion
The top agricultural export is meat. Australia's meat exports
are dominated by frozen beef shipments headed to the US and Japan.
China is the third biggest market for Australian meat.
Australia doesn't have a very large manufacturing sector and
needs to import much of what it consumes. However, the good news is
that it diversifies the sources of its imports.
Australia top import sources, 2018
China $55.5 billion (+13%)
US $23.2 billion (+2%)
Japan $16.8 billion (+4%)
Germany $11.2 billion (+7%)
Thailand $11.2 billion (+1%)
South Korea $9.9 billion (-39%)
Malaysia $9.8 billion (+15%)
Singapore $8.6 billion (+37%)
New Zealand $5.9 billion (-0.5%)
UK $5.4 billion (+3%)
Thanks to booming gas exports, Australia has been able to kick a
trade deficit it incurred in 2015, and turn it into a trade surplus
worth almost $30 billion last year.
Australia top imports, 2018
Electric parts & machinery $31.8 billion (+11%)
Oil & gas $30.5 billion (+34%)
Cars, trucks and parts $30 billion (+2%)
Electronics $25.6 billion (+12%)
Optical & medical equipment $8.3 billion (6%)
Pharmaceuticals $8.2 billion (+4%)
Precious stones $6.6 billion (-0.2%)
Plastics $6.4 billion (+10%)
Articles of iron and steel $6.4 billion (+22%)
Furniture, bedding, lamps $4.8 billion (+9%)
Australia's biggest risk is its vulnerability to any dip in
demand from China. In February, when the port of Dalian suspended
imports of coal from Australia so that Chinese customs authorities
could carry out "risk monitoring & analysis of imported coal to
safeguard the rights and interests of Chinese importers and protect
the environment", the value of the Australian dollar immediately
tumbled. Australia is still figuring out the tricky balancing act
of maintaining its alliances with both China and the US while they
feud over trade.
Australia also faces a number of self-incurred risks. A housing
bubble recently popped, with potentially damaging and far-reaching
consequences. Another risk is climate change: In 2017, storms
slowed down exports from Australia's biggest ports.
The Trade Numerologist is IHS Markit's unique weekly look at global trade by award-winning journalist John W. Miller, formerly of the Wall Street Journal, using proprietary numbers from IHS Markit's Global Trade Atlas database, the world's most complete and accurate set of trade numbers.
What topic would you like the Trade Numerologist to cover? Email tradenumerologist@gmail.com with comments and questions.
