01 May 2017
Australia’s economy is uniquely placed to benefit from global structural change being driven by rising economic and geopolitical uncertainty.
Populism and growing income and wealth inequalities are driving developed economies away from the globalism that has dominated the past 40 years toward more nationalistic and inward looking policy.
Macquarie Group Head of Australian Macroeconomic Research Jason Todd believes Australia’s economic and demographic strengths position it well for the challenges of a more volatile and regionalised world.
We have stronger population and therefore economic growth and that’s something that’s very attractive to the rest of the world."
"This is because our political situation is quite stable, we are endowed with good natural resources and we have some organic growth drivers that will be appealing in a world that is structurally changing," says Todd.
The global context
The US election and the Brexit decision stand out as the most recent and major examples of the move toward more protectionist policies.
But Macquarie research says this shift has been occurring for almost a decade.
It says 2008 marked the peak of financial liberalisation and the global freeing of trade, before the global financial crisis and the collapse of the Doha round of World Trade Organisation negotiations.
Since then, several key trends have emerged including the decreasing dominance of the US, a more prominent China, the rise of populism and greater government intervention to drive economic growth through fiscal policy.
Macquarie expects this will result in a complete reworking of the global trade and finance system over the coming decades.
The Australian outlook
Australia has a unique resilience to this changing global dynamic, says Macquarie Group Head of Economic Research Australia James McIntyre.
Its geographic location insulates it from geopolitical threats and positions it to benefit from economic growth in China and India.
Its wealth of natural assets means it is food and energy self-sufficient.
Australia’s demographics are also more favourable in a world where economic growth is expected to become more of a challenge.
Australia’s population is expected to grow by 1.7 per cent a year over the next five years – three times the average pace of other similar economies.
In addition, Australia’s population is not ageing as rapidly, while its long-standing immigration program has ensured a steady supply of skilled and educated foreign workers.
"We have stronger population and therefore economic growth and that’s something that’s very attractive to the rest of the world," McIntyre says.
These combined factors mean Australia is expected to deliver GDP growth well in advance of similar economies over the next five years.
By 2021, Australia’s economy is expected to grow by 18.5 per cent, almost twice the rate of the G7 economies at 9.6 per cent.
While Australia’s political environment has not been immune to rising populism, its wide political middle and combination of compulsory and preferential voting continue to deliver electoral outcomes that remain close to the political centre.
Macquarie says challenges for Australia include low income growth combined with a heavily indebted consumer, a high reliance on global capital markets to fund investment and the continued diversification of the economy.
"Australia’s attractiveness has probably remained unchanged in absolute terms and probably improved in relative terms by the shifts that have been going on globally," McIntyre says.
"That’s good for Australia because it helps grow our economy."