Australia is the 12th largest economy in the world in terms of nominal gross domestic product (GDP) in 2021 with about $1.4 tn. The Australian economy accounts for 1.6% of the global economy.
However, the economy has rebounded in early 2021. As per February 2022 forecasts, Australia’s GDP growth rate is expected to grow an annual 5% in 2021 from a decline of 2.4% in 2020. The Australian government has predicted estimates of 4.25% in 2022 and 2% in 2023.
As per the International Monetary Fund (IMF), unprecedented macro policy stimulus and relatively quick suppression of the virus in 2020 helped the Australian economy recover strongly from the recession induced by the pandemic.
Australia GDP Annual Growth Rate (in %)
Viewed historically, Australia economy was known as heavily dependent on agriculture, particularly wheat, beef, lamb, dairy produce, and several irrigated crops. Following World War II, its manufacturing and services sectors began growing as mineral exploitation in the country developed. Australia started undergoing economic liberalization in the early 1980s.
Australia’s population is around 25.8 million, and 89% of its people can be found in many urban areas. Over 7.6 million migrants are living in the country, and more than a third of its annual population growth is due to net overseas migration.
The unemployment rate for the full year 2021 fell by 0.5 percentage points to 4.2%, lowest recorded since August 2008. The central bank forecasts that unemployment will soon fall below 4.0%, which is likely to happen by the end of 2022, with increasing labour demand.
Australia Unemployment rate
Currency and Central Bank
The Australian dollar or AUD is the official currency of Australia and its external territories, namely Christmas Island, Cocos (Keeling) Islands, and Norfolk Island. People use the dollar sign ($) 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. Prior to the Reserve Bank Act 1959, the Commonwealth Bank of Australia had central banking functions.
Australia Inflation (in %)
In the recent monetary policy meet in February 2022, the central bank has kept its key interest rate unchanged at a record low of 0.10%. The RBA continues to keep an ultra-loose monetary policy, even with inflation for the full 2021 year hit 3.5%, above the Reserve Bank’s 2.0%–3.0% target band.
The stronger-than-expected acceleration in inflation in 2021 was driven by a spike in gasoline prices and shortages caused by supply-chain disruptions.
Industry and Trade
Australia’s economy is dominated by its service sector, which contributed 71.9% to the GDP and employed 88.6% of its workforce. Furthermore, financial services, healthcare, social assistance, and travel services count among leading growth sectors of Australia’s economy.
Australia is traditionally an importer of finished goods. Despite being relatively smaller in size, its industrial sector has been characterized by high productivity levels. Around 75% of the industries found in the country have above global average productivity ratings.
The manufacturing sector comprises 26.1% of the GDP and employs 6.9% of the labor force as of 2020. 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 agriculture sector only contributes to 2.1% of the GDP and provides jobs to 2.6% of the workforce. Mining represented 11% of GDP and employed 1.9% of Australians.
However, Australia’s agricultural and mining sectors are the most critical for exports, with iron exports, comprising 21% of the country’s total annual exports. In addition to this, Australia is also one of the leading exporters of wool, meat, wheat and cotton in the world.
Australia ranks 22nd worldwide in total exports and its main export products include iron ore, coal briquettes, petroleum gas, gold, and aluminium oxide. The country’s main export partners are China, Japan, South Korea, India, and the United Kingdom.
Australia 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 include China, the US, Japan, Germany, and Thailand.
Survey and Rankings
Australia went up by one spot in the Heritage Foundation’s Index of Economic Freedom from the 4th freest in 2020 to 3rd in 2021, but its overall score declined by 0.2 points from 82.6 to 82.4. The country has been in the “Free” category for the past 15 years.
In the World Bank’s 2020 Ease of Doing Business, the country rose by four places from 18th to 14th. Australia economy has increased its overall score from 80.7 to 81.2, ranking 9th among countries in the OECD high-income region.
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.
Australia’s non-government bond market is significantly larger than its government bond market. Investors can buy and sell Australian Government Bonds (AGBs) on the Australian Securities Exchange (ASX) at market value.
Last September, the RBS had announced it will purchase government securities at a pace of $3 bn a week, until at least mid-February 2022. According to RBA Governor Philip Lowe, the measure was aimed at providing continued monetary support to the economy to help it transition from recovery to expansion.
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).
As per Australian Bureau of Statistics (ABS), the estimated total value of Australia’s housing market has risen from $7.2 tn to a record high of $9.4 tn in just 12 months. Meanwhile, the average price of a residential dwelling in Australia climbed to $863,700 by December 2021. Government tax and other incentives as well as low interest rates fuelled upward shift in demand for housing during the pandemic.
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