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.

  • Prime Minister Tony Abbott's leadership is looking increasingly precarious following the defeat of the Liberal National Party in the Queensland state elections. With approval ratings hitting new lows, the prospects of a turnaround look slim at present, and the Labor 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...

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Australia Industry Coverage (23)

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 2014 and 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...

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Autos

Australia Autos

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As of end-October 2014, Australian new vehicle sales stood at 924,189 units, down by 1.9% year-on-year (y-o-y), according to figures from the Australian Federal Chamber of Automotive Industries (FCAI). As such, BMI is happy to maintain its forecast of a 1.4% contraction in sales over the full year.

Looking specifically at the October figures, there were a total of 91,216 passenger cars, sports utility vehicles (SUVs) and commercial vehicles (CV) sold, representing a 1.5% decrease y-o-y. SUVs continue to grow in popularity with Australian consumers, up 9.7% y-o-y, while passenger cars (-8.1%) and commercial vehicles (-1.9%) both fell back.

The FCAI identified low levels of business confidence as one key impediment to the auto sector's near-term prospects, with business sales down 7.1% year-to-date. On a state basis, only New South Wales saw positive sales growth, with all other states 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 the maturity of the market, with high penetration rates for PCs, HD TV sets and smartphones leaving diminished prospect for rapid growth compared to the majority of APAC 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 device. Despite these limitations on growth vendors can ...

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Defence & Security

Australia Defence & Security

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BMI View:  While there are limited major security threats to Australia over the short to medium term, BMI expects it to continue to play a prominent role in international peacekeeping military campaigns. This policy is currently being played out in Australia's recent military response to the threat posed by the Islamic terrorist group ISIS in the Middle East. We expect such strategic military objectives to continue to fuel arms procurements, particularly from its closest trade partner the US, and drive an increase in overall defence expenditure for the remainder of our forecast period.

Australian Prime Minister Tony Abbott has estimated that the country's involvement in Iraq is likely to cost half a billion dollars each year, and moreover that some personnel have already...

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Food & Drink

Australia Food & Drink

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BMI View: We hold a below-consensus view on the short-term outlook for Australia's economy, but see opportunities in the food and drink sector. For example, the country's mass grocery retail sector faces some short-term challenges, but we believe it remains a reasonably attractive proposition for industry players. Discount formats in particular demonstrate strong opportunities for growth. We see premiumisation as the main driver of growth in non-carbonated soft-drinks. Meanwhile our low growth forecasts for private consumption have led us to downgrade our expectations for overall food consumption. Per capita consumption will grow even more slowly than the total, reflecting demographic concerns.

Australia's Q314 GDP miss supports our view that full-year real GDP growth will fail to meet consensus expectations and we maintain our forecast of 2.8%....

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Freight Transport

Australia Freight Transport

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Australia's current account picture is gradually improving despite deteriorating terms of trade, the result of higher export volumes and lower income outflows, the former providing welcome news for the Australia freight industry. Going forward we maintain that a current account surplus is likely as the Australian dollar depreciates, but this will increasingly be driven by lower imports, to the detriment of the domestic economy.

Australia's current account position continues to gradually improve, and we maintain our view that a current account surplus within the next few years (we are forecasting a broad balance by 2017). There have been two dynamics in play that have been contributing to the improvement in Australia's current account deficit over recent years. Firstly, the trade balance has gradually improved as commodity shipments have surged in volume terms, while import growth has been subdued owing to the weaker Australian dollar and...

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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: AUD8.2bn in 2014 to AUD8.5bn in 2015, up 3.8% in local currency terms....

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Infrastructure

Australia Infrastructure

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BMI View: Australia's construction sector will slow in 2015, with growth being weighed down by a slowdown in the mining sector, a lack of competitiveness and political headwinds. Growth however, remains at a respectable rate, supported by the housing sector - fuelled by record-low interest rates - and the government's emphasis on developing the country's infrastructure.

Key Trends And Developments

  • We remain positive over growth for the sector in 2015, although our 3.0% growth forecast for the construction sector is still lower...

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Insurance

Australia Insurance

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BMI View: By many metrics, Australia's insurance sector is hardly growing at all. In US dollar terms, premiums are likely to shrink over the next year or so; nevertheless, the strengths are formidable. The non-life insurers are successfully developing new products and services, and cutting costs, in order to boost profitability. The life insurers, which are also innovative, are working to ensure that the relentless growth of Australia's colossal superannuation system is an opportunity, rather than a threat. All clearly have access to the capital that they need.

In Australia, both the non-life and the life segments are dominated by organisations that have the advantages of well-established brand names, ability to develop innovative products, proven ability to execute...

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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...

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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 sharp investment slowdown due to the cooling of China's economy over the coming years.

Australia has been among the biggest beneficiaries from 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 is over. With China's economy on course for a rude slowdown over the coming years, Australia's mining sector is set to suffer the painful spillover effects of a sharp investment slowdown.

...

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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 oil imports as domestic crude oil production experiences weak growth while refining outlook is bleak in face of regional competition.

Headline Forecasts (Australia 2012-2018)
2012e 2013e ...

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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 government will continue to use drug price controls as a means to reduce healthcare expenditure. Our view is based on the government's runaway budget deficit and the inevitable increased demand for medicines as the population ages and incidence of long-term diseases rise. Consequently, government price controls will continue to present downside risk to drugmakers selling their products in Australia. The need to curb growing healthcare expenditure and high medicine prices will result in the government targeting medicine prices.

Headline Expenditure Projections

  • Pharmaceuticals: AUD12.95bn (USD12.50bn) in 2013 to AUD13.48bn (USD12.40bn) in 2014; +4.0% in local currency terms and -0.8% in US dollar terms, due to...

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Power

Australia Power

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BMI View: Australia's power sector is facing unprecedented changes and challenges. Although demand for electricity remains strong, consumers are increasingly satisfying their need in the form off-grid solar energy rather than on-grid electricity from traditional sources of energy such as coal and gas, severely affecting the profitability of traditional providers and forcing the closure or mothballing of coal and gas-fired power stations. While coal and thermal generation will remain buoyant over the next decade, helped by changes in government policy, plentiful supplies of coal and shale, and the development of LNG stations, the most significant market opportunities will lie in renewables.

Australia's...

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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...

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Renewables

Australia Renewables

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BMI View: The significant drop in investment into large-scale renewable energy in Australia during 2014 aligns with our underlying view of the country's renewables industry - which is clouded by policy uncertainty. The outcome of the RET review will greatly determine the growth of the Australian renewables sector for the next five years, and we expect it will most likely result in a reduction in the target.

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 supporting the growth of renewable energy. Following that, the government announced that it was set to review and amend the country's renewable energy target (RET), which is the main...

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Shipping

Australia Shipping

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The headwinds are beginning to circle around the Australian economy and, by extension, the country's shipping industry, this is especially the case over the short-term. Growth will be muted at the country's main ports in 2015 with the port of Fremantle leading the way in terms of year-on-year (y-o-y) tonnage growth of 3.40% and box throughput growth of 3.70%. Meanwhile, the port of Melbourne will finally see positive growth return after two years of stagnation. We have decided to stick to last quarter's forecasts across the board.

In terms of the wider economy, although net exports are now beginning to contribute positively to growth in real terms - indeed, exports expanded at an 11.3% quarter-on-quarter (q-o-q) seasonally adjusted annual rate (SAAR) in Q3 2014, while imports contracted by 3.7%. However, this merely represents the difficulty that the Australian economy will face in rebalancing its external accounts amid deterioration in its...

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Telecommunications

Australia Telecommunications

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BMI View : The Australian telecommunications industry is one of the highest value markets in the Asia Pacific region and even the world, as a result of high incomes and strong uptake of higher value services such as broadband and smartphone handsets. However, growth opportunities will be severely limited in the near future due to the highly saturated nature of the market. 4G offerings will take centre stage, given the proliferation of smart devices and growth in demand for high-speed data services, and should provide a boost to...

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Tourism

Australia Tourism

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BMI View: The Australia tourism report examines a range of key market indicators in this robust Asia Pacific tourist destination, including the expected increases in outbound and inbound travel, the boost this will provide to tourism-related expenditure, and the steady rise in industry value throughout our forecast period through to 2018. Domestic economic growth and improving transport connections point towards a bright future for tourism in Australia.

Australia's tourism arrivals, particularly those from Western states such as the UK and the USA, were affected by the global credit crunch, and the country remains vulnerable to any economic downturn in these key source markets. However, Australia has successfully diversified its tourism market to encompass many major...

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Water

Australia Water

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BMI View: This quarter we have substantially 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. 

We believe that the current levels of water usage, both for irrigation and livestock is unsustainable and is putting extreme pressure on an already beleaguered water system struggling to cope with limited supplies and soaring demand. In addition to the issues facing agricultural users, we also feel that the burgeoning shale gas sector in Australia could be severely hampered...

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