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.
Australia Country Risk
Overvalued Property Market The Largest Risk To Growth
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; a high 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 ruling Liberal-National coalition government's poor political fortunes are improving and gaining momentum, suggesting that it will emerge victorious in the upcoming federal elections, which must be held by January 2017. The coalition's rise in popularity came about after Malcolm Turnbull took over as Australia's Prime Minister on...
Australia Industry Coverage (24)
BMI View: Australia's agribusiness sector enjoys great characteristics and will see its exports grow in the coming years, driven by the rise in production, its reputation as a reliable exporter of sage and quality products and strong external demand. However, the sector's future success will be somewhat held back by rising production costs and profitability issues which are weighting on the outlook for production, in the upstream dairy sector for example. Moreover, the country's vulnerability to extreme weather events will grow in the coming years with climate change, making agricultural production even more volatile. Finally, Australia has to face rising competition coming from lower-cost producers which aim at supplying the attractive markets in Asia and the Middle East.
Australia signed a number of trade deals with key importing countries, including the Trans Pacific...
All three of the manufacturers producing cars in Australia - Ford Motor Company, Toyota Australia and General Motors's Holden subsidiary - will cease local car and vehicle engine manufacturing operations by 2017.
The demise of local manufacturing means that many local component manufacturers will be forced to close or look for alternative markets.
New vehicle sales will struggle to show good growth levels in 2016, as the domestic economy slows and the Australian dollar remains weak.
With Australia's local production capabilities set to disappear in 2017, future automotive demand will be met solely by imported vehicles.
In this context, the Japan-Australia free...
Australia Commercial Banking
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Australia Consumer Electronics
BMI View: Depreciation and product diffusion cycles (tablets, LED/LCD TV sets and smartphones) have resulted in significant volatility in the Australian consumer electronics market - and depreciation is forecast to result in another contraction in 2016. The market should however stabilise over the medium term as the economy stabilises and product categories return to volume growth trajectories primarily determined by replacement sales. We expect US dollar growth to return from 2017-2019 and offset the decline in 2016, with a CAGR of 0.2% forecast for 2015-2019 to USD11.1bn in 2019. There will however be select opportunities for faster growth: for instance, hybrid notebooks and high specification tablets...
Defence & Security
Australia Defence & Security
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...
Food & Drink
Australia Food & Drink
BMI View: Food and drink sales will experience robust growth throughout our forecast period to 2020, especially given the sector's existing level of development. Consumers adopting healthier lifestyles will boost sector dynamism, fuelling growth in segments like dairy and mineral waters, and pushing food and drink manufacturers to offer more natural and organic products.
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|f = BMI forecast. Source: National statistics, BMI|
Australia Freight Transport
BMI View: Over the course of 2016 we expect to see road freight once more outperform the other two modes in Australia with the former coming in at 3.10% y-o-y growth, and rail freight and air freight are forecast to grow by 2.77% and 0.70% respectively. The slight y-o-y gains across all of the modes compared to 2015 are in line with our view that the overall trade picture is set to improve over the next 12 months with real trade growth pencilled in to increase by 3.00% in 2016. Through to the end of our forecast period in 2019, we expect growth to be steady, if uninspiring. We expect the Australian dollar to continue to face fundamental downside pressure, and this will allow the decline in imports needed to improve the country's external indebtedness over the coming years.
The Australian economy continued to slow in Q1 2015, and we maintain our 2015 real GDP growth estimate of 2.3% (...
Australia Information Technology
BMI View: We believe our previous forecast understated the size of Australia's software and IT services segments, and as such historical data was revised upwards in Q116. We also adopted a more bearish analysis of IT hardware spending trends in 2015 this quarter, and now believe the market contracted as a result of a decline in tablet volumes after the rapid proliferation of ownership 2011-2014, a trend that was exacerbated by economic uncertainty and currency depreciation. In 2016 depreciation will continue to present challenges, particularly for retail hardware vendors, but the outlook brightens as the forecast period progresses, and we highlight opportunities including premium retail hardware spending, cloud computing and Internet of Things solutions and services. We forecast a CAGR of 4.2% for IT market spending over 2015-2019, but caution there is downside to our outlook due to the...
BMI View: Australia's residential building sector will continue to prop up wider construction activity over 2015 and 2016, but growth will not be sustainable at current levels over the long-term as we expect a slowdown in the housing market beyond 2016. Growth will also be weighed by political risks and a slowdown in the mining sector.
Latest Updates And Structural Trends
We downgrade our outlook for Australia's construction sector and forecast real growth of 0.4% and 1.5% in 2015 and 2016, down from 2.9% and 3.1% respectively. We believe growth will still 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.
BMI View: As of early 2016, the general trends for Australia's insurance sector are positive. Thanks mainly to net immigration, the population is growing. This will contribute to continued growth in overall economic activity through the forecast period, even if the pace of expansion is slower than in recent years. The life segment should benefit from the further development of superannuation funds, from innovation by life insurers, and from increased demand for annuities and other retirement income solutions. The non-life segment should benefit from volume growth - although players in many sub-sectors will continue to face downwards pressure on prices. The main exception to this is the health insurance sub-sector, where insurers will benefit from rising volumes and, thanks to inflation in healthcare costs, rates.
Australia Medical Devices
BMI 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 is expected to slow momentum in the US dollar value of the market. We forecast that the market will record a negative 2014-2019 CAGR of 2.3% in US dollar terms.
|Total (USDmn)||Per Capita (USD)||Total (Local Currency mn)||Per Capita (Local Currency)||...|
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...
BMI View: Iron ore and bauxite will emerge as the Australian mining industry's production growth bright spots during 2016-2019. Coal and gold output growth will slow more markedly due to continued price weakness.
Although Australia will remain one of the world's largest mineral producers, growth will slow across the board due to continued mineral price weakness. The Australian mining sector will be particularly affected by China's economic slowdown, as the country accounts for almost 80.0% of the country's iron ore exports. We expect Australia's mining industry value to fall to USD128bn in 2015, down from USD141bn in 2014. We forecast Australia's mining industry value growth to pick up again by 2017, reaching USD141bn in 2019. Iron ore, for example, which accounts for 44.0% of the country's...
Oil & Gas
Australia Oil & Gas
BMI View : The start-up of several mega LNG export ventures over 2015-2018 will propel Australia to overtake Malaysia to become the world's second largest exporter of LNG in 2016. That said, longer-term production and exports growth will be markedly slower post-2018, as low oil prices and a well-supplied global LNG market hinder investment in new projects. Although an upsurge in liquids output from large gas developments will temporarily swing Australia's historical crude deficit into a surplus, natural declines and rising consumption will restore the country's net importer status by the end of our forecast period to 2024.
The Australian petrochemicals industry is on the brink, faced with potential feedstock supply problems, a lack of competitiveness and a saturated market. The closure of the country's automotive industry in 2017 will further dampen the sector's hopes of growth.
Polymer output declined 1.3% y-o-y in the first nine months of 2015 amid a worsening terms of trade and unwinding investment boom. The strengthening of the Australian dollar combined with falling Asian polymer prices hit the competitiveness of the petrochemicals industry. Additionally, the industrial sector as a whole underperformed.
The Australian petrochemicals industry is small and its plants are ageing. Faced with over-supply in the Asian market due to the Chinese slowdown and growth in ethane-based production in the US, the country's leading petrochemicals producer Qenos is facing uncertainty. Even the growth of...
Pharmaceuticals & Healthcare
Australia Pharmaceuticals & Healthcare
BMI View: The prevailing trend of austerity targeting pharmaceuticals and healthcare spending in Australia will continue to weigh on the country's attractiveness to innovative drugmakers. On top of this, ongoing political instability and policy uncertainty have moderated the confidence to invest in Australia, with cooperation between the government and the pharmaceutical industry remaining sparse as their relations come under strain. Meanwhile, although the Trans-Pacific Partnership's latest outcome confirms Australia's attempt to balance incentives to innovation in the biopharmaceutical industry with cost containment concerns, the recent creation of a medical-research fund will provide some...
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...
Australia Real Estate
BMI View: Australia's real estate sector continues to see investment from Asia as slowing local markets and an attractive AUD exchange rate present opportunity, particularly to the property manager. Investment is strongest in the retail sector and is expected to mitigate the downturn in mining output and export production affecting in demand for storage facilities in the industrial sector. Such demand in the retail sector from consumers and investors alike stands to benefit the large shopping mall complexes and luxury retailers as demand for the traditional high-street store is seen to be tapering...
BMI View: Our muted renewables forecasts are unchanged this quarter, as the appointment of Malcolm Turnbull as Australian Prime Minister does little to boost Australia's embattled renewables sector; as green energy policy will remain largely the same under his leadership. The long-awaited agreement on the country's RET in May 2015 was broadly positive for the industry; however, the outlook remains clouded.
BMI View: The continuing slump of the Australian dollar will hurt the affordability of imported goods across all retail sub-sectors. Despite that, around 30 midmarket and luxury retailers are planning to enter the Australian market in 2016, on hopes that the rebound of national currency will add a premium on overall expected household spending. The real economic growth will exceed the 2% mark and unemployment rate is bound to decline, however, we expect The Reserve Bank of Australia to preserve its historically low 2.0% interest rate policy this year. Cheaper borrowing will stimulate several major sub-sectors, mostly, housing & utilities.
|Headline Household Spending|
BMI View: Our short-term outlook for Australia's shipping sector is slightly mixed for 2016, with steady, if uninspiring growth, the order of the day across the country's main ports on the back of a subdued trade outlook and muted domestic picture. Leading the way in y-o-y box throughput terms will be the port of Brisbane (2.5% gains), while the port of Fremantle's 3.9% will see the best performance in tonnage terms.
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, thus providing unwelcome...
BMI View : The Australian telecoms market is a mature market, meaning that operators' strategies will focus on deepening and not widening. This will be done through the most advanced LTE networks, offering a wide range of innovative services, and new segments such as M2M. The monopoly of the NBN of advanced fixed technologies means that operators can focus on service competition as opposed to network roll-outs, allowing them to invest on content to attract and retain customers.
BMI estimates 31.3mn mobile subscribers at the end of Q315, with incumbent Telstra continuing to dominate the market
The NBN has a monopoly on advanced fixed broadband technologies, but uptake remains low, with around 600,000 customers compared...
BMI View: Australia has a well-established tourism market, and rapid growth in arrivals from major source markets in the Asia Pacific region, particularly China, is leading to solid gains in hotel industry value and tourism-related expenditure. The country offers a highly attractive investment environment, with few restrictions on foreign investment and the significant real estate availability outside of major cities such as Sydney and Melbourne both drawing the attention of a range of hotel developers. Australia's vast size and relatively small population mean the domestic market is restricted, lowering average occupancy rates. However, long-term growth prospects remain positive in light of increasing accessibility and air connectivity.
BMI View: Weexpectthat 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.This will in turn see greater attention on the legislative environment, and improve the water sector's attractiveness for private sector players.