Australia: Economic and Political Overview
For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.
The Australian economy experienced 26 years of uninterrupted economic growth. it was the only OECD country that did not enter into recession during the financial crisis of 2007-2008, holding one of the highest growth rates of the developed world. In 2022, Australia was the world’s 13th largest economy. Under the global effect of the COVID pandemic, it’s GDP growth amounted to -2.4% in 2020, down from 1.9% a year earlier but bounced back in 2021 at 4.9% and then 3.9% in 2022. The economy continues to be driven by business and government spending, while households and the consumer sector struggle amid low wages growth (generally, consumer spending represents almost 60% of the economy). The country also benefits from large-scale exports of agricultural products and a vigorous financial sector. According to the IMF's October 2021 forecast, GDP growth is expected to reach 1.9% in 2023 and then 1.8% in 2024 (IMF Economic and Political Outlook, October 2022). A risk is that the recovery in business and consumer sentiment is hampered by a rise in business insolvencies and renewed labour market weakness as policy support was scaled back in 2021. The economic recovery has been uneven due to differences in the impact of voluntary and imposed confinement across regions, industries and firms. The end of border restrictions is slowly fuelling the recovery in education and tourism exports.
In 2022, the inflation rate in Australia was 6.5%, a rate that is expected to come back to 4.8% in 2023 and 2.9% in 2024 according to the latest World Economic Outlook from the IMF (October 2022). Due to the COVID-19 crisis, the government budget balance showed a large deficit in 2021 (-6.2 % of GDP) which came back in 2022 to -3.5%. It is forecasted to stabilise at -3.1% in 2023 and -2.6% in 2024. IMF evaluated the 2022 government debt at 56.7% of GDP, expecting it to reach 58.6% and 60.5% in 2023 and 2024 respectively. Private consumption should continue to decrease as households become more cautious. Some support is coming from fiscal policy in the form of infrastructure spending, tax breaks and social transfers, and from a still accommodating monetary policy. Investment is also set to get some traction, benefiting from still ample corporate profits, favourable taxation and higher demand for infrastructure and services. A risk is that the recovery in business and consumer sentiment is hampered by a rise in business insolvencies and renewed labour market weakness as policy support was scaled back in 2021. Services exports in particular (tourism and education) are expected to regain momentum in a post-COVID world, helped by a renewed demand from Asia-Pacific neighbours. The Government is seeking to increase national appeal relative to its Asian competition in international trade. At the same time, to boost the economy, Australia is increasing its economic integration with the Asia-Pacific region and Europe, with which it has signed trade agreements while maintaining preferential relations with the United States. 2022 was a year of a renewed dialogue with China, in a context of tense relationship with this country, Australia's biggest trading partner.
The unemployment rate was quite low until the pandemic (5.2%) but picked at 6.5% in 2020 before coming back to 5.2% in 2021 an 3.6% in 2022. The IMF expects the unemployment rate to reach 3.7% in 2023 and 4.2% in 2024. Moreover, Australia must face an ageing population and climate change impacts, such as the loss of 20% of the Great Coral Reef's coral due to a catastrophic bleaching situation, catastrophic bushfire - during the 2019-2020 fire season over 17 million hectares had been burned across the country - and the increasing frequency and duration of extreme weather events like floods and droughts putting an unprecedented stress on the Australian agriculture. The country is also one of the largest Co2 polluters per capita in the world.
In 2023, the country’s most immediate challenge will be to navigate the volatile international context, facing steep challenges against a backdrop of the persistent health and economic overhang of a global pandemic and a war in Europe, a cost-of-living crisis caused by persistent and broadening inflation pressures, and the slowdown in China.
| Main Indicators | 2020 | 2021 | 2022 (E) | 2023 (E) | 2024 (E) |
| GDP (billions USD) | 1,360.69 | 1,646.39 | 1,701.89 | 1,707.55 | 1,720.12 |
| GDP (Constant Prices, Annual % Change) | -1.8 | 5.2 | 3.7 | 1.6 | 1.7 |
| GDP per Capita (USD) | 53,072 | 63,896 | 65,526 | 64,964 | 64,603 |
| General Government Balance (in % of GDP) | -7.9 | -6.1 | -3.5 | -3.3 | -2.9 |
| General Government Gross Debt (in % of GDP) | 57.1 | 57.6 | 55.7 | 59.4 | 62.4 |
| Inflation Rate (%) | 0.9 | 2.8 | 6.6 | 5.3 | 3.2 |
| Unemployment Rate (% of the Labour Force) | 6.5 | 5.1 | 3.7 | 4.0 | 4.1 |
| Current Account (billions USD) | 29.86 | 50.15 | 20.44 | 23.64 | 4.18 |
| Current Account (in % of GDP) | 2.2 | 3.0 | 1.2 | 1.4 | 0.2 |
Source: IMF – World Economic Outlook Database, October 2021
Traditionally, Australia is an importer of finished goods. Its industrialisation is fairly recent, a fact which explains the small scale of its manufacturing sector. Nevertheless, the sector is characterised by high productivity levels, with 75% of the industries rating above the global average. The industrial sector employed 19% of the workforce in 2021 (World Bank, 2023) and contributed to just over a quarter of the GDP (25.5%). The manufacturing industry is built around the food industry (27% of the workforce in 2022), machinery and equipment (around 20%), metal processing and metal goods (nearly 16%), the chemical and petrochemical industries (slightly more than 10%) and Building materials, wood, furniture & other manufacturing products with 17% (AI Group, 2022).
Agriculture employed 2.5% of the workforce in 2022 and contributed 2.3% to the GDP (World Bank, 2023). However, the agricultural and mining sectors are the most important for exports: Australia is a vast agricultural country and one of the world's main exporters of wool, meat, wheat and cotton. The country is overflowing with mineral and energy raw materials, which secure substantial revenues when exported. Australia was again the world’s largest producer of iron ore in 2022, and the second of gold and uranium, and stayed the world’s largest LNG exporter ahead of Qatar the same year). In fact, iron ore exports alone account for 24% of the country's total annual exports and iron ore was the first Australian commodity to reach the 100 billion AUD mark in annual export value, in 2019-2020 (Resources Energy Quarterly report, 2020). Australia also has the world's largest reserves of numerous strategic resources, such as uranium, of which it holds 40% of the world's confirmed reserves.
The services sector occupies a dominant position in the Australian economy, contributing to 72.2% to the GDP and employing over 77.7 of the workforce (World Bank, 2022). The biggest growth in this sector has been the rise of business and financial services (holding the world’s sixth largest pool of managed fund assets). Health care and social assistance have also given a fundamental contribution to growth. Travel services, such as education-related travel, recreational travel and business travel services have also been growing significantly until 2020.
Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades. The cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook. Global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023, the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic. Global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022 but to decline to 6.5 percent in 2023 and to 4.1 percent by 2024 (International Monetary Fund - IMF, 2023). The impact of the 2022 world events appears to have affected both sides of most sectors and markets in this country for the third year in a row - demand disruptions having run up against supply problems - making the short-term outlook uncertain for agriculture, industry and service sectors.
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
| Employment By Sector (in % of Total Employment) | 2.6 | 19.1 | 78.4 |
| Value Added (in % of GDP) | 2.3 | 25.5 | 65.7 |
| Value Added (Annual % Change) | 23.0 | -0.6 | 2.4 |
Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.
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The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}
The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.
Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024
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Latest Update: September 2023
