Before stepping out of your house, you check the weather forecast to decide on your clothes. Likewise, private firms forecast their sales in order to make decisions on the quantity of inputs to purchase. In the business realm, forecasting facilitates planning for future production, expansion or contraction.
Investors too consider the exchange rate projections for zeroing down the countries where putting money would yield the best returns. Likewise, Central Banks forecast the inflation and output growth figures to formulate the monetary policy, which economists across the globe monitors and analyses.
While it may appear technical, but planning for the future, at both macro and micro level, is crucial to develop strategies to be better prepared to deal with all sorts of contingencies and ensure long-term success.
Relevant information about the past and present events can all be derived for forecasting the likely future events which helps market players to make reliable decisions.
Over the last two years, Australia, like other advanced economies, witnessed the impact of the US-China trade war spilling over to the services sector. However, over the course of 2019, global financial conditions have remained accommodative which largely balanced the impact of the trade dispute - now experiencing improved negotiations.
The housing construction activity in Australia has remained subdued over quite some time, going through a phase of correction, before it began to exhibit signs of improvement, approaching end of 2019.
As per the Reserve Bank of Australia (RBA), in the short-term, a larger-than-expected contraction in dwelling investment could delay the improvement in GDP growth but in the medium term, rising housing prices would imply that the dwelling investment would be stronger than currently expected.
RBA also suggests that going forth, mining activity may have some upside risk while non-mining business investment is expected to be a contributing factor to growth over 2020 and 2021. During the September 2019 quarter, Resource exports recorded major uptick and the trend is expected to continue primarily driven by amped up iron ore and coking coal production, as well as the sustained ramp-up of LNG exports.
Overall, the Australian GDP growth is expected to be moderate in the near term, states RBA, reaching around 2.75% over 2020 and around 3% over 2021, on the back of ongoing infrastructure spending, low level of interest rates, recent cut in taxes, upswing in housing prices in certain regions as well as a brighter outlook for the resources sector. While, the impact of recent bushfires on businesses, people and economic activity is posing some threat to the growth expectations.
Amidst the positive predictions, the case for consumption growth is still a point of uncertainty for the domestic GDP growth. Although, RBA expects the consumption scenario to come to a balance in the medium term as consumption growth recovers gradually on the back of rising household disposable income and improvements in the housing market.
The nation recorded $1.7 billion rise in the November trade surplus to $5.8 billion driven by robust coal and iron exports, with slowed down imports due to consumption constraints.
The growth in labour demand, the recent monetary policy easing that lowered household interest payments as well as low- and middle-income tax offset reducing tax payments, are all going to be pushing up the household disposable income.
Furthermore, as drought conditions across most of Australia continue to persist, rural exports are forecast to decline over 2020 and improve thereafter. Meanwhile, the RBA suggests that service exports would be growing gradually, supported by higher number of enrolments by overseas students and the exchange rate depreciation over the last year. Imports, that have mostly been weak through 2019, are likely to increase at a steady pace.
Meanwhile, employment growth in Australia continues to be robust and leading indicators, as per RBA, depict that labour market conditions will continue to be positive over the next six months. The 1.6% uptick in job vacancies for the November quarter (seasonally adjusted terms) is a clear signal towards the same.
Australia Offering Lucrative Business Opportunities
Having said that, the Australian Trade and Investment Commission (Austrade), in its Benchmark Report 2019, presented reasons in favour of Australia being a safe, low-risk destination to invest and do business-
- It is the only advanced economy that has been recession free since 1992, growing at an average rate of 3.2% annually. It experiences healthy fiscal position, strong policy frameworks, robust institutions and a developed financial system.
Besides, Australia boasts of an attractive investment environment, a sophisticated services sector, abundant natural resources and smart people.
- With strong trade ties and a strategic location close to the Asia Pacific region, Australia is set to benefit immensely from its expected growth and demand for high-quality goods and services.
As per a forecast by the International Monetary Fund (IMF), Asia-Pacific region’s share of global GDP in terms of purchasing power parity valuation is expected to rise over 45% by 2023 while the two key economies China and India are expected to are likely to represent a combined 30% proportion of the world’s GDP over this period.
- Services-based economy – The services sector accounts for over 3/4th of the real industry output in Australia and it has exhibited a growth of an average of 3.6% per year since 1992. For the same period of time, technology- and knowledge-intensive service sectors like Telecomm, Professional, Technical and Financial Services, all grew by an average of over 4.5% per annuum.
- Australia has a healthy fiscal position with the AUD 7.1 billion budget surplus announced for 2019-20 in April 2019, to which Standard & Poor confirmed Australia as one of only 10 countries with a AAA credit rating.
Despite the geo-political headwinds experienced in 2019, there are clear signs that the Australian economy and its sub-sectors are bouncing back beginning end of 2019 and will continue to do so in the near term. The recovery in property market, improved labour market scenario, uptick in trade surplus announced recently just marks the beginning.
The IMF is also optimistic and anticipating that Australia’s real GDP will grow at 2.7% (average annual rate) from 2020 to 2024.
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