Like much of the developed world, Australian business news hasn’t been too kind on the economic outlook for 2023, with talk of an imminent recession.
Australia is experiencing many of the challenges countries like the US, UK, China, and New Zealand are facing. Inflation is hovering at around 7%, energy prices are increasing, and the Reserve Bank of Australia has announced its eighth consecutive rate hike. Globally, there is political unrest in Ukraine and countries like China, and the UK are experiencing inflation, high interest rates and foreign currency market challenges.
Australia’ early response to the pandemic
Compared to the rest of the world, Australia’s economy has shown resilience to the devastating impacts of COVID, arguably due to firm COVID restrictions nationwide. Targeted lockdowns and tight border closures were aimed at containing the spread of the virus very early on, and vaccination numbers are some of the highest in the world.
The government rapidly implemented a raft of economic stimulus’ worth 20% of GDP in the early stages of the pandemic to keep companies in business and minimise the long-term economic impact. A$20 billion was assigned to support businesses and households in the September quarter of 2021 alone.
These efforts have paid off. Australia – a country home to just 0.3% of the world’s population – is projected to become the 12th largest economy in the world by 2023, according to Austrade’s benchmark report Why Australia.
Other encouraging factors that make Australia an attractive country to expand your business into
Low tax: Comparatively, Australia is one of the lowest-taxed countries in the world. 28% of the country’s Gross Domestic Product (GDP) comprises personal income tax and corporate profits. Social security taxes make up just 1% of GDP, compared to the OECD average of 9%. Goods and Services taxes make up just 7% of GDP compared to the OECD average of 11%.
Low government debt: whilst Australia does have some public debt; it’s relatively low compared with almost all global economies. A 2021 report by the International Monetary Fund estimated that Australia’s government debt would be 43% of GDP in 2022, compared with the 89% average forecast estimated for developed countries.
Growing services sector: the services sector has increased by 3.3% every year over the last 30 years, with the Information, Media and Telecommunication sector growing the fastest at 5% per year, followed by professional, scientific and technical services (4.8%).
Source: Austrade’s benchmark report Why Australia.
Australia is a leader in innovation
International companies have long viewed the Australian public as early adopters of innovation and technological change, making it an exceptional choice to test technological advancements.
Key Australian business news facts:
- Our scientific institutions are in the top 1% of the world in 15% of separate fields of research, including clinical medicine and computer science.
- The technology sector has grown by 26% since the pandemic’s beginning, becoming the third largest contributor to Australia’s GDP.
- Australia is ranked fourth in the world for digital consumption and sixth for fintech development, according to Euromonitor.
An abundance of top talent that attracts global attention
Our highly skilled workforce makes us one of the most forward-thinking nations in the world, ranking in seventh place for university education systems (International Institute of Management Systems) and eighth on the UN’s Human Development Index.
Our workforce is among the world’s most highly educated. 47% of employed people hold tertiary qualifications or advanced diplomas. 75% of those working in professional, scientific and technical services and 64% in the information media and telecommunications sector have a tertiary education.
In other Australian business news, what’s the economy like right now?
As many global economies suffer, Australia’s most recent quarter saw Gross Domestic Product grow by 0.6%, driven by increased household spending, which grew by 1.1% from the previous quarter.
Spending on hotels, cafes and restaurants increased by 5.5% as venues reopened and border restrictions eased, and spending on transport services increased by 14%. Vehicle purchases rose by 10% as global supply chain issues were alleviated (source, The Guardian).
Household savings-to-income ratio also fell for the fourth consecutive quarter, going from 8.3% to 6.9%. This is commonly seen as a good sign when inflation is high.
Australia’s treasurer, Jim Chalmers, has stated that the national economy is “performing solidly in the face of steep headwinds from overseas as well as considerable and compounding pressures on Australian families and businesses”.
Although it’s common for quarterly figures to fluctuate, most economists expect Australia’s economy to slow significantly from December onwards but at least avoid a recession at the level expected in the United Kingdom and the United States.
Shane Oliver, an economist at AMP, says there are still strong ongoing business investment plans. “The ABS capital spending intentions survey is up about 15% on a year ago… real business investment is expected to grow by around 5% over the year ahead.”
Immigration is also on the rise, with borders opening once again. The country is experiencing a sharp increase in new visas for arrivals as the backlog works hard to catch up. The federal government expects net immigration of 235,000 after negative immigration in FY21.
“The surge in immigration will help ease the labour shortage and tight jobs market… which in turn will help head off a surge in wages growth to levels well beyond those consistent with the inflation target.”
Oliver has also addressed the large backlog of home-building work yet to be completed since COVID lockdowns, despite a 25% fall in new home-building approvals.
Oliver also echoes the sentiments of the RBA in that the economy remains resilient. Interest rates will begin to slow in the coming months. The increase in wage growth and energy prices have not been as stark as in other countries, and US inflation is starting to slow and that “should benefit Australia, which is following US inflation with a six-month lag”.
You can catch Shane Oliver’s complete response on the AMP website.
Will 2023 be the year to expand your business into Australia?
Although the near future of Australia’s economy is anyone’s guess, it’s still very possible that the country may avoid a recession, at least at the level expected in the US and UK.
It’s also still possible to hire skilled workers in Australia without the risk for international businesses of having to set up a physical entity in the country.