Economic strength is one of the most beneficial aspects of Australian company formation and incentivizes foreign investors to set up in the country. The following economic facts demonstrate why:
• The Australian foreign exchange market is the seventh largest in the world.
• The Australian dollar/US dollar exchange rate pair is the fourth most traded currency pair in the global market.
• Australia is one of the richest developed and most industrialized countries in the world.
• The Australian economy is one of the largest capitalist economies in the world with a GDP of US$1.57 trillion.
• The country is ranked as the nineteenth largest importer and nineteenth largest exporter in the world.
• With a relatively small population by nominal GDP, Australia’s total wealth is 6.4 trillion dollars.
The Australian Security Exchange is the largest stock exchange in Australia and the South Pacific and it ranks 9th in the world in terms of market capitalization. The Australian dollar is the national currency of the commonwealth of Australia, including territories such as Christmas Island, Cocos Islands and Norfolk Island.
68% of the country’s GDP is made up of Australia’s service sector, which includes tourism, education and financial services. The mining sector also plays a significant part of the economy, with the mining sector and mining-related business making up a total of 19% of Australia’s GDP. As a result, economic growth is largely dependent on the mining and agricultural sectors, with products exported mainly to the East Asian market. The emphasis on exporting commodities rather than manufacturing underpinned a significant increase in Australia’s terms of trade during the rise of commodity prices since 2000. Inflation has typically been 2-3% and the base interest rate 5–6%.
The services sector has grown considerably, with property and business services increasing by 4.5% and making it the largest single component of GDP (in sector terms). This growth has largely been at the expense of the manufacturing sector, which in 2006–07 accounted for around 12% of GDP. A decade earlier, it was the largest sector in the economy, accounting for just over 15% of GDP.
Australia’s sovereign credit rating is “AAA”, higher than the United States of America and Australia’s four ‘Big Banks’ which are among the ‘World’s 50 Safest Banks’ as of April 2012. Predictions from the International Monetary Fund in 2012 state that Australia would be the best performing major advanced economy in the world over the next two years. The Australian Government Department of the Treasury forecasts growth of 3.5 per cent in 2013 and economic growth forecasts are set to trend in 2012-13 and 2013-14, causing Australia to outperform most of the developed world.
However, the National Australia Bank cut its growth forecast in 2012 to 2.9% from 3.2% and the Societe Generale warned of a recession risk in 2013. In addition, global financial conditions remain weak, despite global financial market tensions easing in the early months of 2012 after the acute bout of instability in late 2011. This is particularly so in the major advanced economies, and financial markets are fragile.
Against this backdrop, the global economy is undergoing dramatic structural change as the weight of economic activity shifts towards Asia. This has significant implications for Australia; strong demand from Asia is expected to continue to support high commodity prices, drive record levels of investment in resources and resources-related projects in Australia, and underpin solid growth in export volumes.
Nonetheless, conditions in some parts of the economy are likely to remain challenging, with unsettled global conditions, the high Australian dollar, on-going consumer caution and changes in expenditure patterns all expected to weigh heavily on some sectors.
Overall however, Australia’s economic outlook remains positive, with economic growth expected to be solid, the unemployment rate expected to remain low and inflation likely to be well contained.