Blessed with rich natural resources, Australia’s economic activity has been augmented by demand for commodity exports and the investments made in the mining sector over the past decade. The risk however, is that Australia has become increasingly reliant on high commodities and robust demand from China to sustain strong levels of growth. The country’s free-market economy is supported by a highly educated workforce. Australia is a mature democracy with a broadly stable party system.

Our coverage – using our unique Total Analysis model – ensures that our clients make sound investment decisions in Australia. Our teams keep our clients informed of the latest market moves and political developments as part of our 'top-down' and 'bottom-up' perspective. We also provide in-depth analysis on 23 of Australia’s most important industries. Combining interactive data and forecasting with our risk-assessed and results-proven analysis gives our clients the big picture they need. We are confident that you, as our client, will find doing business in Australia is made easy.

Country Risk

Australia Country Risk

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Core Views

  • Real GDP growth is highly likely to slow over the coming years owing to a number of factors: slowing growth in the working age population; an increasing share of government spending relative to GDP; and a reversal in the country's terms of trade; and the growing risk of deflation. These impediments will result in real GDP growth averaging 2.3% over the next decade, down from 2.9% over the past decade.

  • The Liberal-National coalition government's popularity continues to slide, and Prime Minister Tony Abbott's leadership continues to look precarious. The prospects of a turnaround look slim at present amid weakening economic growth, and the Labour Party is in prime position ahead of next year's general election.

  • We remain bearish on the Australian dollar despite the large fall we have already seen in...

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Australia Industry Coverage (24)

Agribusiness

Australia Agribusiness

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BMI View: The Australian agriculture sector is still recovering from a decade of subdued production growth due to extreme weather and a lack of investment. The industry is expected to remain buoyant in 2015, largely supported by export demand from Asia and elevated grains and oilseeds prices. In the longer term, we see major export growth opportunities in the sugar and livestock sectors. Australia will face stiff competition from Asian countries such as Thailand for sugar and from the US and Brazil for meat, but it will remain a key player in those industries. Apart from growing competition, Australia will have to face high production costs and a vulnerability to extreme weather...

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Autos

Australia Autos

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Australian new vehicle sales continue to power ahead, in line with BMI's expectations. Over the first seven months of 2015, there were a total of 670,735 new vehicles sold in Australia, representing a 3.2% increase y-o-y. Looking specifically at July's figures, sports utility vehicles (SUVs) showed a 13.4% annual increase in sales to now account for over 35% of the total new car market. Light commercial vehicles (LCVs) also showed steady growth, of 4.7% y-o-y, with both of the above sub-segments gaining at the expense of passenger cars (PCs), whose sales fell by 4.7% y-o-y in July.

Commenting on the July sales figures, the chief executive of the Federal Chamber of Automotive Industries (FCAI), Tony Weber, highlighted the change that Australia has witnessed in its fleet mix over the past decade. According to Weber, passenger cars accounted for over 60% of new vehicle sales 10 years ago. Now, LCVs and...

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Commercial Banking

Australia Commercial Banking

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...
Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Australia Consumer Electronics

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BMI View: High incomes and strong demand for premium devices make Australia a lucrative market for consumer electronics vendors. However, the outlook for the Australian consumer electronics market is weakened by its maturity, with high penetration rates for PCs, HD TV sets and smartphones leaving diminished prospect for rapid growth compared to the majority of Asia Pacific markets. Furthermore, the economic outlook is weakening, with currency depreciation a medium-term downside risk that could affect confidence levels and the affordability of imported devices. ...

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Defence & Security

Australia Defence & Security

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BMI View: We expect Australia's defence budget to continue increasing in absolute terms in the next five years. This will be driven by Australia's defence policy focused on becoming a key player in regional and international security, which will require an upgrading of both its navy and air force capacities. The government is looking to take advantage of the globalisation of the defence market to continue importing defence materiel whilst, simultaneously, facilitating Australian defence SMEs' access to the market. This will open up development opportunities for both international and national companies operating in the defence sector.

In its 2009 Defence White Paper, Australia spelled out its Force 2030 strategic defence objective. It...

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Food & Drink

Australia Food & Drink

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BMI View: The Australian economy continued to slow in Q115, and we maintain our 2015 real GDP growth forecast of 2.3% (versus 2.7% in 2014). The country's worsening terms of trade and unwinding investment boom continue to act as major headwinds to growth. Back in 2011, global food manufacturer Heinz (before it was bought by 3G Capital and subsequently merged with Kraft Foods in 2015) publically criticised the structure of the retail market and said it was a very difficult environment for suppliers. Although spending levels are high on a per capita basis, the relatively small size of the consumer market (population of 23mn) and the structure of the retail market will continue to temper Australia's appeal for global manufacturers.

Headline Industry Data (local currency)

  • 2015 per...

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Freight Transport

Australia Freight Transport

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BMI View: The latest forecasts for 2015 show road freight outperforming the other two modes at 3.1% growth, compared to rail freight's 2.9% growth and air freight's 1.6%, a change from previous expectations. Road will more than double rail freight in terms of tonnes handled, while air freight remains at a far lower figure. Significant falls in the main key trade indicators for exports and imports will occur in 2015 with total imports down -15.81% and exports down -13.57%.

Economic growth in the country is projected to dip to 2.25% in 2015 but pick up to nearly 3...

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Information Technology

Australia Information Technology

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BMI View: Due to high labour costs, BMI believes Australian enterprises could be among the early adopters for AI applications such as IBM's Ask Watson service, which has already been trialled by ANZ Bank. Emerging technologies aside, the growth outlook is relatively weak in Australia. This is in part a consequence of market maturity, meaning growth will underperform the APAC average, which is weighted to emerging markets, but there is also macroeconomic downside as BMI expects economic growth to slow over the medium term.

Headline Expenditure Projections:

  • Computer Hardware Sales:...

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Infrastructure

Australia Infrastructure

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BMI View: Australia's residential building sector will continue to prop up wider construction activity over 2015, but growth will not be sustainable at current levels as we expect a slowdown in the housing market beyond 2016. Growth will also be weighed by political risks, a slowdown in the mining sector and a decline in competitiveness.

Key Trends And Developments

  • We remain positive over growth for the sector in 2015, although our 2.9% growth forecast for the construction sector is still lower than the 10-year historical average of 4.4% (between 2004 and 2013).

  • We believe growth will be supported by the residential building segment. This is due to favourable monetary conditions and also the delayed impact of dwelling units being approved, but has yet to start construction. We highlight the...

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Insurance

Australia Insurance

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BMI View: The enormous strengths of Australia's insurance sector remain obvious. In USD terms, premiums will likely fall quite sharply in 2015 because of the weakness of the AUD. However, in local currency terms, growth should be sustained by the ongoing expansion of the superannuation (super) funds (for the life segment) and continued innovation (in the non-life segment). Both major segments of Australia's insurance sector have long been open to competition from foreign majors. In both segments, virtually all companies have scale, capacity to develop and distribute innovative products, access to capital and reinsurance, multi-channel distribution strategies and, in many cases, strong brands and we expect this to continue going forwards.

...

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Medical Devices

Australia Medical Devices

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BMI Industry View : The Australian market has performed well in recent years, driven by a strongly-growing economy and the requirements of an increasingly elderly population. However, a weakening of the Australian dollar over the next five years is expected to bring the momentum in the market to a halt.

Headline Industry Forecasts

  • At USD4,903.9mn, the market ranks amongst the top 20 largest in the world, while per capita spending is on a par with European markets such as the Netherlands or Finland. Growth for the 2013-2018 period is expected to be subdued; estimated at a CAGR of 1.2% in USD terms which will raise the market to USD5,206.9mn by 2018.

  • Since 2001, medical device imports have seen a period of sustained growth. In 2013,...

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Metals

Australia Metals

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BMI View: Australia will see subdued growth in both production and consumption of most metals as a weakening global commodity market continues to take its toll on the economy. While significant additional global monetary stimulus should help to boost metal prices in the near term, the bout of loosening measures will be insufficient to stem the slowdown and the medium-term outlook for metals remains weak.

We expect a slowdown in the metals industry in Australia on the back of slowing demand in China. Weak demand from slowing domestic construction and a cooling export market will continue to undermine...

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Mining

Australia Mining

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BMI View: Australia's mining sector is set to suffer the painful spillover effects of a prolonged period of weak mineral prices, in part resulting from a sharp investment slowdown in China.

Australia has been among the biggest beneficiaries of the China-led commodities boom over the past decade, attracting huge amounts of investment into the minerals space. Driven by China's voracious appetite for key commodities such as coal and iron ore, the value of Australia's mining industry had increased by more than six-fold from USD24bn in 2003 to USD154bn in 2013. As a result, this has seen the sector's share of GDP rising from 4.5% to 10.2% over the same period. However, the boom years in the mining industry are over. With China's economy on course for a continued...

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Oil & Gas

Australia Oil & Gas

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BMI View : Australia is set to become a major player in the global liquefied natural gas (LNG) market by the end of the decade. However, we see waning investment sentiment, which will slow growth momentum. The country will also have to contend with a growing reliance on refined fuels imports as domestic production will not be sufficient to meet rising domestic demand.

...
Headline Forecasts (Australia 2013-2019)
2013 2014e 2015f

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Petrochemicals

Australia Petrochemicals

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While Australia's hydrocarbons resource base is strong, BMI's latest Australia Petrochemicals Report does not envisage it will lead to investment in new petrochemicals capacity over the medium-term due to infrastructural and cost barriers.

The country's refining outlook is poor due to declining oil production in fields that had supplied the country's refining sector located in the east. The relatively unsophisticated refining sector is increasingly uncompetitive and by 2016 refining capacity will be half the peak seen in 2003 due to plant closures. On the upside, it appears that most of the refineries remaining in Australia intend to stay in operation. Reduced refinery output will limit naphtha availability for local petrochemicals production, although naphtha is not the main source of feedstock.

Gas availability is set to increase dramatically, although much of this will be exported. Opportunities for using ethane in...

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Pharmaceuticals & Healthcare

Australia Pharmaceuticals & Healthcare

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BMI View: The Australian pharmaceutical market is expected to continue on a moderate growth trajectory over our forecast period. This is mainly explained by rising chronic disease burden as well as government funding to list new medicines under the Pharmaceutical Benefit Scheme. However, revenue opportunities for multinational drugmakers in Australia will remain limited by cost containment measures. This was accentuated in the Sixth Pharmacy Community Agreement passed by authorities in June 2015, which drives a downgrade in our pharmaceutical market forecast for the country. Among the measures outlined, the move to allow biosimilar substitution in an attempt to curb spending on biologic drugs poses additional risks to innovative drugmakers with a strong portfolio of biologic treatments.

Headline Expenditure Projections ...

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Power

Australia Power

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BMI View: Despite being a mature market Australian power sector is still growing, driven by strong demand. Although BMI believes renewables will be the fastest growing power source in Australia, policy changes have led BMI to downgrade its renewable forecast. Meanwhile, coal will remain the dominant power source throughout out forecast.

Australia's power sector is facing unprecedented changes and challenges. Demand for electricity remains strong, but is considerably less than what was anticipated at the end of the last decade due to de-industrialisation and greater energy efficiency. Moreover, consumers are responding to the incentives created by the government's commitment to renewable energy, by generating their own electricity from off-grid...

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Real Estate

Australia Real Estate

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BMI View:  Australia's commercial real estate market is buoyed by strong fundamentals, with a mature economy, highly skilled workforce, transparent regulation and a welcoming business environment. However, the economy has been posting slower growth; and a slowdown in demand in China, a major destination for Australia's mineral exports, could have an indirect effect on Australia's economy. Overall demand for commercial real estate is expected to remain low because of this, and we are forecasting no increase in rental rates in 2015 and 2016.

The economic outlook is set to remain blighted by the impact of the Chinese slowdown and government austerity, as well as a lack of consumer confidence. We see real GDP growth coming in at 2.4% in 2014 and 2.3% in 2015, well below the 3.8% achieved in 2012. Although there will be a slight...

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Renewables

Australia Renewables

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BMI View: A small revival in Australia's renewables industry aligns with our view that the recent deal on the country's RET is broadly a positive for the industry - providing some policy clarity. The future of the sector remains far from stable however, given the government's proposals to restrict funding for certain renewables technologies. This continues to clouds our 10-year growth forecasts for the industry, threatening project financing and our 'brightspot' outlook for the residential solar sector.

Since assuming office in September 2013, Prime Minister Tony Abbott and the Liberal-National coalition have taken several divisive steps to scale-back or repeal emissions reduction and green energy policies. In July 2014, the Abbott administration abolished the carbon tax scheme, which was one of the mechanisms...

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Retail

Australia Retail

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BMI View: Australia's retail market is well developed, benefiting from a large proportion of mid to high range income households with disposable income for spending on non-essential items. The strengthening of the US dollar means that in 2015 we expect to see a contraction in the retail market in US dollar terms, though we note that in local currency terms retail spending continues to increase and by the end of the forecast period we will see an overall increase in household spending in both USD and AUD terms.

Australia does face some significant economic headwinds in 2015. The resource boom is winding down and investment in the key mining sector is subdued. As such we expect GDP growth to slow in 2015, down from 2.8% in 2014. Businesses will likely be faced with higher import costs as the Australian dollar weakens,...

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Shipping

Australia Shipping

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BMI View: In tandem with the wider economy, Australia's shipping industry will not see huge strides in terms of y-o-y growth, but it will nonetheless enjoy modest gains over the medium term. While the Australian economy continued to slow in Q1 2015, we maintain our 2015 real GDP growth forecast of 2.3% (versus 2.7% in 2014) - the country's main ports are set to post modest gains, led by the Port of Melbourne (tonnage growth) and Brisbane (container growth).

We caution that the country's worsening terms of trade and unwinding investment boom continue to act as major headwinds to growth. The total value of services exports is now slightly greater than that of iron ore exports, given the sharp decline in commodity prices despite surging volumes, and this divergence will increase over the coming years. This is not welcome news to...

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Telecommunications

Australia Telecommunications

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BMI View : As a highly saturated telecommunications market Australia offers limited growth. 4G offerings will take centre stage, given the proliferation of smart devices and growth in demand for high-speed data services. This should provide a boost to the near-term ARPU of mobile operators. This is driving operators to invest in high speed networks and new technologies such as VoLTE and 4GX.

Key Data

  • By March 2015, mobile subscriptions had reached 31.257mn. Telstra continues to gain significant net additions at the expense of Vodafone Hutchison Australia (VHA).

  • The auction of 700MHz digital dividend spectrum in May 2013 encouraged the spread of LTE and value-added services, but we expect strong competition and a deteriorating economy...

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Tourism

Australia Tourism

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Due its wide range of attractions and enviable climate, Australia is already established as a popular tourist destination. The inbound tourism market to the country benefits from a high level of diversity, with high levels of arrivals from major Asia Pacific, European and North American markets lessening the potential impact of any regional economic downturn. The government is highly supportive of the tourism industry, funding extensive marketing campaigns and also progressively reducing visa restrictions for arrivals from top source markets such as China. As such, we expect to see a healthy growth in arrivals of 14.6% in 2015, leading to an arrivals figure of 7.9mn, with further robust growth expected thereafter.

Australia's outbound tourism market is also well established. Outbound travel is forecast to reach 15.1mn in 2015, reflecting slower growth than that expected of the inbound tourism market. Steady growth is expected...

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Water

Australia Water

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BMI View: This quarter we have updated and expanded our forecasts across various areas of the water sector. We now cover mains and non mains consumption and extraction, water losses, desalination production and household connections to mains networks. Our new forecasts reflect our overall expectation that water demand in Australia will continue to rise, putting additional pressures on the dwindling freshwater reserves, and stimulating investment in desalination and water treatment and reuse infrastructure.

Heavily dependent on surface water, Australia's water market is increasingly looking to recycled water sources as droughts intensify and ground water resources dwindle. While new reservoirs are being constructed, and large wastewater reuse projects are underway, rising demand for water from mains and non mains users puts increasing pressures on limited resources. Despite the...

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