The Australian industries set to thrive in the new world order

01 May 2017

Tourism, education, agriculture and financial services will drive economic and investment opportunities in Australia over the next two decades.

Australia’s economy continues to diversify following the mining investment boom, while global dynamics are driving more localised agendas in many countries.

Australia’s above average economic growth, rich natural assets, growing population and highly skilled workforce position it well as an investment destination in this changing global environment.

In a world where it might be challenging to achieve growth, Australia will look like a growth haven."

"In a world where it might be challenging to achieve growth, Australia will look like a growth haven," says Macquarie Group Head of Economic Research Australia James McIntyre.

Services: the growth engine of Australia’s economy

Australia is particularly well placed to capitalise on the international shift towards service driven economies.

Of the approximately one billion new jobs created globally over the past 25 years, 75 per cent have been in services. The sector will account for more than half of all global employment in the next decade, compared with 34 per cent in 1991.

"Services are where the world’s growth trajectory lies," says McIntyre.

Despite Australia’s heavy focus on mining for economic growth, its service industries remain the largest segment of the economy, accounting for 75 to 80 per cent of employment.

McIntyre sees growth potential for a number of service industries:

Tourism

Tourism arrivals to Australia are expected to grow by 5.6 per cent a year over the next decade, compared with 4.1 per cent a year in the 10 years to December 2016.

The increase is fuelled by a rising – and more mobile – Asian middle class.

The number of Chinese tourists visiting Australia will quadruple by 2030 – from 1.2 million a year to almost five million – if Australia simply maintains its modest market share.

Tourism from India and Indonesia could result in an additional one million arrivals from those countries over the same period.

Education

Australia’s tertiary institutions are set to achieve a record 805,000 international enrolments in 2017, with students from China accounting for more than 25 per cent of that number.

The depreciation of the Australia dollar in recent years, improving the price competitiveness of Australian institutions, has fuelled strong enrolment growth of 9.4 per cent a year.

Financial services

Australia’s proximity to Asia and a globally ageing population position the country to become a global innovator in the asset management industry.

Australia has the fourth largest pool of private pension investments globally and this is forecast to grow from around $2 trillion to up to $10.5 trillion by 2040.

With the high exposure of Australian superannuation funds to equities, this bodes well for the Australian share market, with the ASX200 index forecast to reach 10,000 in 10 years and 20,000 by 2040.

Macquarie argues the Australian financial services industry is equipped to innovate new products for an ageing population and set world standards in the sustainable investment domain, which has grown from $13.5 billion to $633 billion in Australia in the past 15 years.

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Opportunities for other sectors

McIntyre believes there are also many opportunities for industries outside the services sector.

Agriculture

Australia produces enough food to feed 60 million people – two and half times its population – and is ideally positioned to service Asia’s rising demand for Australian produce.

The next five years are forecast to bring a 4.6 per cent productivity increase for Australia’s dairy herd and an 8.8 per cent increase in milk production.

Investments in farm and transport infrastructure are already underway in states such as Tasmania, where new airport infrastructure is facilitating direct flights of milk to China, following major Chinese investment in Australian-based dairy farms.

Education

Australia’s tertiary institutions are set to achieve a record 805,000 international enrolments in 2017, with students from China accounting for more than 25 per cent of that number.

The depreciation of the Australia dollar in recent years, improving the price competitiveness of Australian institutions, has fuelled strong enrolment growth of 9.4 per cent a year.

Resources and energy

As the world’s population becomes increasingly urbanised, demand for Australian resources is expected to remain high.

A net energy exporter, Australia has substantial reserves of coal, gas and uranium.

A stronger Australia

While the global geopolitical environment appears more challenging, McIntyre says the traits that have always worked to Australia’s advantage – its political stability, highly skilled workforce and resource endowment – will ensure the country remains appealing to investors.

"We remain a pretty favourable place for anyone in the global economy to seek the skills, the resources or the food that they need," he says.

"We have the things that the world wants."