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 (33)
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...
BMI View: We continue to believe that the combination of a slowing economy and a weakening Australian dollar will make 2016 a challenging year for Australia's new vehicle sales market. We expect 2.0% sales growth for the sector as a whole, with the industry also gearing up for the imminent end of local production by 2017.
|Passenger Car and Light Commercial Vehicle Sales|
|f = BMI forecast. Source: FCAI, BMI|
Australia Commercial Banking
|Date||Total assets||Client loans||Bond portfolio||Other||Liabilities and capital||Capital||Client deposits...|
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: The Australian government plans large increases in defence spending over the next decade, in order to modernise the ADF - in particular the navy - amid rising threats linked to East and South China Seas territorial disputes, regional military build-ups, terrorism and cybercrime. Large-scale procurement programmes will be carried out over our forecast period to 2025 - most of which will be covered by foreign defence companies, due to Australia's still-limited military industrial base. That said, we see significant potential for expansion of the domestic defence sector in the longer term,...
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. The adoption of healthier lifestyles will be a main driver of long-term change in the sector, translating into growth opportunities in organic/natural foodstuff but declining consumption of alcoholic drinks, especially beer.
|Food and Drink Spending|
|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 Freight Transport
BMI View: Over the short term, we do not expect to see overly impressive y-o-y gains across the freight modes in Australia, but growth will remain in the positive over the medium-term forecast period. The outperforming mode will be rail freight, which is set to register annual growth of 4.9% in 2016, while air freight will trail in third place out of three with y-o-y growth of just 0.7%. Sandwiched in between will be road freight, which is poised to see y-o-y growth of 3.1%. We expect Australia's liquefied natural gas (LNG) and agricultural exports to grow strongly over the coming years, but they are unlikely to offset the significant drag from declining export earnings from the iron ore and coal markets.
Latest Updates And Forecasts
Australia's exports and imports are projected to grow by 3.0% in 2016, but there will be a...
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: Slowing GDP growth and political tensions in the run up to federal elections are dampening investor sentiment in Australia, particularly as the key mining sector continues to post weak results and concerns are rising about the overvalued housing market. The outlook for Australia's construction sector therefore remains subdued, with low single digit growth expected for much of the forecast period through to 2025. While limited activity in the residential sector and in transport infrastructure will stimulate some increase in construction sector value, overall growth prospects are muted.
BMI View: We continue to hold a broadly positive outlook for Australia's large and mature insurance market. Demographic trends, including an ageing and expanding population, will continue to drive growth in demand for various life insurance products, including traditional life cover and later-in-life savings products, particularly through the development of superannuation funds. In the non-life sector, increases in household income levels will stimulate growth, despite fierce competition amongst the many non-life providers. Health, motor and property will remain the key non-life sub-sectors, though we also expect to see growth in smaller lines, such as credit and financial guarantee insurance, reflecting the diversity of this well established market....
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: Lead prices will gradually edge higher as the global lead market will shift into deficit by 2017 as production growth will slow over the coming years.
BMI View: Tin prices will be capped by US dollar strength in 2016, leading us to trim our price forecast to USD14,500/tonne. Beyond 2016, prices will recover gradually as the global tin market posts sustained market deficits and inventories dwindle.
BMI view: We have revised our aluminium price forecast from USD1,575/tonne to USD1,600/tonne in 2016, as the tightening market provided an earlier than expected floor in Q116. Aluminium prices will gradually edge higher as the global market moves into a deficit by 2018.
BMI View: Globally, iron ore prices will remain subdued due to weak demand growth in China and expanding output by major miners in Australia and Brazil. China will see output slow as the country's iron ore miners operate on the higher end of the global iron ore cost curve.
BMI View: Nickel prices will bottom in 2016 as weak production drags the global market into deficit. For instance, we expect Chinese imports of nickel to grow over the coming quarters. Prices will begin 2016 weaker than we had previously expected and we have thus revised down our 2016 average price forecast to USD9,000/tonne from USD10,500/tonne.
BMI View: We have revised down our average copper price forecast for 2016 to USD4,900/tonne. We expect prices to find a floor over the first half of 2016, and begin to stabilise thereafter, supported by production cuts and modest consumption growth.
BMI View: Gold prices will prove resilient in 2016 due to a dovish shift in global monetary policy and elevated systemic financial sector risks. However, we do not foresee a sustained multi-year recovery and the mining sector will thus remain under significant stress. We forecast slowing mine production growth and increasing consolidation.
BMI View: Global steel prices will remain subdued due to a persistent steel oversupply over the coming quarters. From 2017 onwards, steel prices will gradually edge higher as the global steel surplus will narrow due to Chinese supply moderation.
BMI View: We maintain our average zinc price forecast for 2016 of USD1,750/tonne. We expect zinc prices to reach a floor over the first half of 2016, and begin to stabilise thereafter, as production cuts shift the market to a deficit.
BMI View: Nickel and bauxite will emerge as the Australian mining industry's production growth bright spots during 2016-2020. 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 USD86bn in 2016, down from USD96bn in 2015. We forecast Australia's mining industry value growth to pick up again by 2018, reaching USD94bn in 2020. Iron ore,...
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: As the Australian government continues to focus on cost containment while at the same time increasing the population's access to innovative medicines, companies will increasingly need to justify the price of their treatments by demonstrating their value to the broader healthcare system in improving the quality of life. This will need to be further substantiated by rigorous economic analysis which showcases a strong incremental product cost effectiveness ratio.
Headline Expenditure Projections
Pharmaceuticals : AUD14.0bn (USD10.5bn) in 2015 to AUD14.5bn (USD9.6bn) in 2016; +3.4% in local currency terms and -8.6% in US dollar terms, due to significant exchange rate fluctuations.
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 outlook for Australia's renewables sector remains negative, due to the unstable policy environment and waning government support for the industry. Amid this downbeat environment, we highlight residential solar, battery storage and community-level projects as the industry's major bright spots.
BMI View: The weakness of the Australian dollar has benefited local retailers, particularly online retailers, as overseas products have become more expensive. The slump has, however, hurt retailers of imported goods. Nevertheless, we expect interest in the Australian retail sector to remain high, with a robust number of retailers planning to enter the market by the end of 2016. While the economic growth outlook remains lacklustre, cheaper borrowing will help stimulate spending in a number of important sub-sectors, with housing and utilities witnessing the strongest growth.
|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.