RISKS AND VULNERABILITIES: AUSTRALIA Euromonitor International March 2015 R I S K S A N D V U L N E R A B I L I T I E S : A U S T R A L I A P a s s p o r t I © E u r o m o n i t o r I n t e r n a t i o n a l LIST OF CONTENTS AND TABLES SWOT analysis ............................................................................................................................. 1 Chart 1 SWOT Analysis: Australia ............................................................................ 1 Chart 2 An Overview of Economy, Finance and Trade in Australia: 2014 ................ 1 Major Components of the Economy ............................................................................................. 2 Economy Faces Several Risks To Positive Outlook in 2015 .................................................... 2 Chart 3 Annual Real GDP growth in Australia vs New Zealand: 2009-2016 ............. 2 Chart 4 Gross Value Added by Sector in Australia: 2014 ......................................... 3 Socio-political Risk ....................................................................................................................... 4 Heightened Security Fears Following December 2014 Terror Attack ....................................... 4 Chart 5 Total Unemployment Rate vs. Youth Unemployment Rate in Australia: 2009-2014 .................................................................................................... 5 External Sector ............................................................................................................................. 5 Current Account Deficit Narrows Due To Weak Import Demand .............................................. 5 Chart 6 Australia’s Top 10 Export Destinations: 2014 ............................................... 6 Chart 7 Australia’s Imports by Commodity: 2014 ...................................................... 7 Chart 8 Australia’s External Balance: 2009-2014 ...................................................... 7 Government Finance .................................................................................................................... 8 Fiscal Deficit Restricts Government Spending .......................................................................... 8 Chart 9 Public Debt vs. General Government Budget Deficit in Australia: 2009-2014 .................................................................................................... 9 Financial Stability ......................................................................................................................... 9 Chart 10 Australia’s Bank Nonperforming Loans to Total Gross Loans: 2009- 2014 ........................................................................................................... 10 Chart 11 Inflation and Long-Term Interest Rate in Australia: 2009-2014 .................. 10 Real Estate ........................................... ...

1. RISKS AND VULNERABILITIES:
AUSTRALIA
Euromonitor International
March 2015
R I S K S A N D V U L N E R A B I L I T I E S : A U S T R
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LIST OF CONTENTS AND TABLES
SWOT analysis
...............................................................................................
.............................. 1
Chart 1 SWOT Analysis: Australia
............................................................................ 1
Chart 2 An Overview of Economy, Finance and Trade in
Australia: 2014 ................ 1
Major Components of the Economy
.............................................................................................
2

2. Economy Faces Several Risks To Positive Outlook in 2015
.................................................... 2
Chart 3 Annual Real GDP growth in Australia vs New Zealand:
2009-2016 ............. 2
Chart 4 Gross Value Added by Sector in Australia: 2014
......................................... 3
Socio-political Risk
...............................................................................................
........................ 4
Heightened Security Fears Following December 2014 Terror
Attack ....................................... 4
Chart 5 Total Unemployment Rate vs. Youth Unemployment
Rate in Australia:
2009-2014
...............................................................................................
..... 5
External Sector
...............................................................................................
.............................. 5
Current Account Deficit Narrows Due To Weak Import Demand
.............................................. 5
Chart 6 Australia’s Top 10 Export Destinations: 2014
............................................... 6
Chart 7 Australia’s Imports by Commodity: 2014
...................................................... 7
Chart 8 Australia’s External Balance: 2009-2014
...................................................... 7

3. Government Finance
...............................................................................................
..................... 8
Fiscal Deficit Restricts Government Spending
.......................................................................... 8
Chart 9 Public Debt vs. General Government Budget Deficit in
Australia:
2009-2014
...............................................................................................
..... 9
Financial Stability
...............................................................................................
.......................... 9
Chart 10 Australia’s Bank Nonperforming Loans to Total Gross
Loans: 2009-
2014
...............................................................................................
............ 10
Chart 11 Inflation and Long-Term Interest Rate in Australia:
2009-2014 .................. 10
Real Estate
...............................................................................................
.................................. 11
Chart 12 Gross Fixed Capital Formation in Australia: 2009-2014
............................. 11
Chart 13 Housing Completions and House Price Index in
Australia: 2009-2014 ...... 12
Energy and Environment

4. ...............................................................................................
............. 13
Chart 14 Australia’s Primary Energy Consumption: 2014
......................................... 13
Chart 15 Total and Per Capita CO2 Emissions in Australia:
2009–2014 .................. 14
Definitions
...............................................................................................
.................................... 14
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RISKS AND VULNERABILITIES:
AUSTRALIA
Australia’s sustained economic growth; stable and open
business environment; and huge
natural resources make it a highly attractive destination for
foreign investors. However, in the
short and medium term, the economy faces several risks arising
from weak commodity prices;
reduced export to China; and fiscal tightening. In the longer
term, however, its rigid labour

5. market; fast-deteriorating manufacturing sector; and
undiversified export destinations will prove
to be its major challenges.
SWOT ANALYSIS
Chart 1 SWOT Analysis: Australia
Source: Euromonitor International
Chart 2 An Overview of Economy, Finance and Trade in
Australia: 2014
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Source: Euromonitor International from national
statistics/IMF/UN
Note: Data for 2015 to 2030 are forecasts.

6. MAJOR COMPONENTS OF THE ECONOMY
Economy Faces Several Risks To Positive Outlook in 2015
Australia’s total GDP of AUD1.6 trillion (US$1.4 trillion) in
2014 made it the eighth largest
economy among the OECD member countries. The country was
fairly resilient to the 2008-2009
global financial crisis, thanks largely to its strong government
finances and very favourable
terms of trade:
in 2013 to 2.7% in 2014, due to
strong household consumption and improved business
sentiments that led to higher
investments in building and inventory accumulation;
further to 2.9% in 2015 and 3.2% in
2016, on the back of continued improvements in both consumer
and business confidence.
Chart 3 Annual Real GDP growth in Australia vs New Zealand:
2009-2016

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Source: Euromonitor International from national
statistics/OECD/UN/International Monetary Fund (IMF)/World
Economic Outlook (WEO)
Note: Data for 2015 and 2016 are forecasts.
diation, Real Estate, Renting and Business
Activities’ was the largest sector
in Australia, accounting for 30.9% of total gross value added
(GVA) in 2014, highlighting the
competitive and highly sophisticated nature of its financial
services. ‘Education, Health, Social
Work and Other Community, Social, Personal Service
Activities’ was the second largest
sector, accounting for 14.7% of total GVA in 2014, due to its
well-established social and
private services sectors;
er Supply’ was the fastest growing

8. sector in Australia, posting an
average annual real growth of 6.7% between 2009 and 2014, led
by large investments,
particularly in the natural gas segment. ‘Mining and Quarrying’
was the second fastest
growing sector, with an average annual real growth of 6.0%
during the same period, reflecting
sustained investments and increase in the sector’s output.
However, ‘Manufacturing’ sector
declined at average annual real rate of 2.8% during this period,
mainly as the sector faced
tough competition from low-cost production bases in the Asia
Pacific;
In 2015, Australia is likely to face several headwinds from
weakening commodity prices; sharp
declines in mining investments; and fiscal tightening, all of
which could put downward pressure
on its economic growth.
Chart 4 Gross Value Added by Sector in Australia: 2014
% of total GVA

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Source: Euromonitor International from national statistics
Notes: (1) Wholesale & Retail Trade includes Repair of Motor
Vehicles, Motorcycles and Personal and
Household Goods. (2) Financial Intermediation includes Real
Estate, Renting and Business Activities.
(3) Public Administration includes Defence and Compulsory
Social Security. (4) Education, Health & Social Work
includes Other Community, Social & Personal Service
Activities.
SOCIO-POLITICAL RISK
Heightened Security Fears Following December 2014 Terror
Attack
Australia offers a stable and favourable environment for
businesses:
Bank’s ‘Voice and Accountability
Index’ in 2013 (latest data available), indicating the high degree
of civil liberties enjoyed by its
citizens and the freedom given to the media. Meanwhile, its

10. ranking in the World Bank’s
‘Political Stability and Absence of Violence Index’ improved
from 33rd out of 203 countries in
2012 to 30th ranking of 203 countries in 2013 (latest data
available), following the September
2013 election and the consequent formation of a new coalition
government, with centre-right
Liberal party leader Tony Abbott as the country’s new Prime
Minister. The outgoing
government had seen its popularity decline due to political
infighting within its party leadership
and on concerns of economic weaknesses;
11th ranking globally out of 175
countries in Transparency International’s Corruption
Perceptions Index 2014. This is due to its
comprehensive anti-corruption system of laws and highly
transparent and well-regulated
government procurement systems;
ia. However, the
December 2014 terror attack by a
lone Islamist gunman on a coffee shop in Sydney and the
February 2015 arrest of two

11. militants believed to be linked to Islamic militant group IS
(Islamic State) are raising security
fears in the country.
Australia has a relatively rigid labour market, due to lack of
flexibility in wage determination
and difficulties associated with hiring and firing workers:
2009 to 6.1% in 2014, mainly due
to an increase in the number of job seekers and the drop in its
exports brought about by the
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economic slowdown in China, its largest trade partner. The
youth employment rate also
worsened from 12.2% in 2013 to 13.2% in 2014, reflecting the
continued weaknesses in the
retail and services sectors, which are typically large employers
of its young workforce.
Chart 5 Total Unemployment Rate vs. Youth Unemployment
Rate in Australia: 2009-
2014

12. Source: Euromonitor International from International Labour
Organisation (ILO)/national statistics
Note: Youth unemployment rate refers to the unemployed
population aged 15-24 as a percentage of
economically active population aged 15-24.
Australia’s rapidly ageing population is key risk to its
demographic profile:
of the total population in 2014,
but is expected to increase to 18.7% by 2030. The old-age
dependency ratio will accordingly
increase from 22.0% in 2014 to 29.4% by 2030. However, this
is unlikely to put any pressure
on its public finances, thanks to its ‘national superannuation
scheme’, whereby employers are
required to contribute 9.25% of the employees’ basic salary
towards their employees’
pensions;
-developed
financial services sector and
stable business environment not only helps it retain its talent,
but also attracts immigrants

13. from the emerging Asia Pacific countries. Australia’s net
migration increased from 172,000 in
2010 to 242,000 in 2014, as its economic growth picked up,
following a slight slowdown in
2009 brought about by the 2008-2009 global financial crisis. As
the economy returns to a
more sustainable growth rate, its net migration is expected to
increase further to 243,000 in
2020.
EXTERNAL SECTOR
Current Account Deficit Narrows Due To Weak Import Demand
Australia is a relatively open economy, with total exports of
goods accounting for 16.7% total
GDP in 2014. In US$ terms, its total goods exports marked a
third consecutive year of
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contraction in 2014, with declines of 5.1% year-on-year in 2012

14. and 1.7% year-on-year in 2013,
followed by a 4.7% contraction in 2014. This was largely
brought about by the slowdown in the
Chinese economy and the drop in overall commodity prices,
which lowered its export earnings:
representing 39.0% of total goods
exports in 2014, thanks largely to its robust agricultural crude
material sector. ‘Mineral Fuels’,
which accounted for 25.8% of total goods exports in the same
year, stood as its second
largest export sector, highlighting its large reserves of coal and
natural gas;
tralia’s export destinations are not well diversified. It
relied on Asia Pacific for 76.7% of its
total goods exports in 2014, making it its biggest export region.
Europe stood as its second
biggest export region but consumed only 5.4% of total goods
export in 2014. China was its
single biggest export partner, accounting for 34.6% of total
goods exports in 2014, followed by
Japan, with 17.9% of total goods exports in the same year.
Australia’s excessive reliance on
Asia Pacific, therefore, makes it highly vulnerable to regional

15. demand shocks, such as the
slowdown in China.
Chart 6 Australia’s Top 10 Export Destinations: 2014
Source: Euromonitor International from International Monetary
Fund (IMF)/Direction of Trade Statistics
The share of total goods imports to total GDP decreased from
16.2% in 2009 to 15.7% in
2014, as demand from its manufacturing sector declined in line
with the on-going contraction in
the sector. In US$ terms, its total goods imports accordingly
contracted by 7.5% year-on-year in
2013 and 2.0% in 2014:
largest imports, accounting for
37.9% of total goods imports in 2014, followed by ‘Mineral
Fuels’, which accounted for 17.8%.
The economy, therefore, stands to benefit considerably from the
weakness in global oil prices
since June 2014;

16. accounting for 54.1% of total goods imports
in 2014, followed by Europe, with 20.1%. China and the USA
stood as its biggest import
partners by country, accounting for 19.3% and 10.8% of its total
goods imports respectively in
2014.
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Chart 7 Australia’s Imports by Commodity: 2014
% of total goods imports
Source: Euromonitor International from International Monetary
Fund (IMF)/Direction of Trade Statistics
The weakness in Australia’s export revenue were largely offset
by declines in its import
demand, thereby narrowing its current account deficit from
US$49.6 billion in 2013 to US$40.2
billion in 2014:

17. improved from 3.3% in 2013 to 2.8%
in 2014;
US$44.7 billion in 2014, up from
US$42.9 billion in 2013. Although these reserves are only able
to cover more than 2.0 months
of total goods imports, Australia stands well cushioned from
sudden shocks to its trade or any
meaningful exchange rate changes owing to the overall strength
of its economy.
Chart 8 Australia’s External Balance: 2009-2014
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Source: Euromonitor International from national
statistics/OECD/International Monetary Fund
(IMF)/International
Financial Statistics (IFS)/World Economic Outlook (WEO)

18. Australia’s foreign direct investment (FDI) inflows stood at
AUD51.7 billion (US$49.8 billion) in
2013 (latest data available), down from AUD53.6 billion
(US$55.5 billion) in 2012. In year-on-
year real terms, its FDI inflows contracted 5.8% in 2013
marking a second consecutive year of
contraction after a 16.7% decline in 2012. Much of the
contraction in its FDI inflows is due to the
decline in its manufacturing sector, as well as the lower
commodity prices that made
investments in its mining sector relatively unattractive:
2011 and 3.6% in 2012 to 3.3% in
2013 (latest data available);
-
established legal systems; and huge
energy and mineral reserves are the biggest attractions for
foreign investors;
The Australian dollar is a free-floating currency, with its
exchange rate against the US dollar
determined by market forces:
changing only
slightly from AUD1.0 per US$

19. between 2011 and 2013 to AUD1.1 per US$ in 2014. However,
the currency remains
vulnerable to changes in commodity prices, as natural resources
account for a significant
proportion of its goods exports.
GOVERNMENT FINANCE
Fiscal Deficit Restricts Government Spending
Australia’s general government net budget deficit has been
improving since 2011 and
reached 1.6% of total GDP in 2014, compared with a deficit of
5.7% in 2010. While much of the
reduction in its budget deficit was due to high commodity prices
until 2013, the reduction in 2014
largely came on the back of restricted government spending as a
part of the government’s
‘Fiscal Strategy and Outlook’ outlined in the 2013-2014 Budget.
The government is aiming to
return to a general government net budget surplus by 2019-
2020:
(US$324 billion) in 2009 to AUD548

20. billion (US$493 billion) in 2014. However, in terms of total real
growth, the government
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revenue increased by 16.2% in this period, owing to weak tax
collection. The proportion of
taxes to total GDP fell from 26.6% in 2009 to 24.8% in 2014, as
the rate of increase in tax
revenue lagged overall GDP progression;
between 2009 and 2014, to reach
AUD574 billion (US$516 billion) in 2014. As a proportion of
total GDP, total government
expenditure decreased from 37.5% in 2009 to 35.7% in 2014, as
the government restricted
growth in spending, in order to bring down its budget deficit;
eficit led to an increase in its
public debt from 16.8% of total
GDP in 2009 to 30.7% in 2014;
maintained its AAA credit rating for

21. Australia and holds a stable outlook, as of July 2014, based on
its strong economic growth
fundamentals; public policy; and flexible monetary and fiscal
policy. On similar grounds, Fitch
holds a stable outlook for Australia, giving it an AAA rating in
October 2014. Meanwhile, the
country maintains its Aaa ratings at Moody’s since 2003, which
holds a stable outlook for the
country, on the back of its narrowing fiscal deficit and plans for
a budget surplus in the
medium term.
Chart 9 Public Debt vs. General Government Budget Deficit in
Australia: 2009-2014
Source: Euromonitor International from National Statistics
Offices/International Monetary Fund/OECD
FINANCIAL STABILITY
More expansionary monetary policy likely in 2015
The Australian banking sector was fairly resilient to the 2008-
2009 global financial crisis,

22. largely owing to ample liquidity; good asset quality; and strong
profitability:
trillion (US$1.3 trillion) in 2009 to
AUD2.1 trillion (US$1.9 trillion) in 2014, marking a real
growth of 15.2% during this period.
The growth reflects moderately strong demand for credit from
households and from
businesses for investment;
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loans to total gross loans in
Australia peaked at 2.2% in 2010 and declined to stand at 1.2%
in 2014. To a large extent,
this is partly due to the country’s regulatory and supervisory
framework, as well as low loan-
to-value ratios on outstanding owner-occupied loans.
Chart 10 Australia’s Bank Nonperforming Loans to Total Gross
Loans: 2009-2014

23. Source: Euromonitor International from World Bank
The Reserve Bank of Australia (RBA), the country’s central
bank, is responsible for monetary
policy and typically uses the ‘the cash rate’ – or the interest rate
on overnight loans in the money
market – in order to maintain price and currency stability; full
employment; and economic growth
in the country. The RBA and the government together target to
keep the annual inflation rate
within the 2.0%-3.0% range in the medium to long term:
om 2.4% in
2013 to 2.5% in 2014, but is
expected to moderate slightly to 2.2% in 2015, owing to
weaknesses in fuel prices;
-term interest rate in Australia was constant at 3.7%
in 2013 and 2014, while annual
lending rates fell slightly from 6.2% in 2013 to 6.0% in 2014;
2014, marking a 4.6% year-on-year
real growth during the year.
In February 2015, the RBA cut the cash rate by 25 basis points

24. to a historic low of 2.25%, to
boost business investment and consumer spending. The central
bank has thereafter hinted
about the possibility of further rate cuts during the course of the
year.
Chart 11 Inflation and Long-Term Interest Rate in Australia:
2009-2014
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Source: Euromonitor International from national
statistics/OECD/UN/IMF
REAL ESTATE
Robust property market keeps momentum in the construction
sector intact
The country’s construction sector has benefited from the
strength in residential property
prices, despite weakening investments in its infrastructure and

25. mining segments. The
construction sector posted real growth of 4.6% year-on-year in
2014, following a rise of 4.3%
year-on-year in real terms in 2013:
construction sector inched up slightly from
8.4% in 2013 to 8.6% in 2014;
pital formation contracted by 1.7% year-on-
year in real terms in 2014, following
a decline of 3.1% year-on-year in real terms in 2013.
Chart 12 Gross Fixed Capital Formation in Australia: 2009-2014
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Source: Euromonitor International from national
statistics/OECD/UN/International Monetary Fund
(IMF)/International Financial Statistics (IFS)
Note: Gross fixed capital formation is measured in constant

26. 2014 prices, fixed exchange rates.
Australia has a robust property market, partly helped by strong
demand for residential
property and partly owing to its low interest-rate regime:
ice Index grew from 104 in 2013 to 114 in 2014
(base year 2010). The strong
demand for residential property led to growth (in nominal
terms) in Australia’s house prices
from 6.6% year-on-year in 2013 to 9.1% year-on-year in 2014;
Global Property Guide, Australia’s house-
price-income ratio of 11.2x in 2014
was higher than New Zealand’s 9.8x. To a large extent, this
reflects the continued strong
increase in house prices in major cities, such as Sydney,
Brisbane, Melbourne and Adelaide.
Chart 13 Housing Completions and House Price Index in
Australia: 2009-2014
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Source: Euromonitor International from national statistics
ENERGY AND ENVIRONMENT
Energy and water shortages further weaken operating
environment
Despite exporting some amounts of petroleum liquids, Australia
is reliant on import of mineral
fuels to meet its energy demands:
accounting for 17.8% of Australia’s total
goods imports in 2014 and making it highly vulnerable to oil
price fluctuations. The country
has well-diversified import sources, with Malaysia, the United
Arab Emirates and Indonesia
being its biggest import partners for mineral fuels;
123 million tonnes of oil
equivalent in 2009 to 116 million tonnes of oil equivalent in
2014, on the back of higher
electricity costs; and improved energy efficiency;

28. consumption from crude oil in 2014,
followed by coal, at 37.3% in the same year. However, by 2020,
the government is looking to
source 20.0% of the country’s total electricity needs from
renewable energy sources, as a part
of its broader ‘Renewable Energy Target’ announced in 2010;
there are concerns that the state
of New South Wales could be heading for energy shortages over
the next two to three years,
owing to a drop in the supply of low-cost gas from Victoria and
Queensland, as these states
redirect their supplies to export markets. The government is,
therefore, putting pressure on
New South Wales to develop its own coal-seam gas fields.
Chart 14 Australia’s Primary Energy Consumption: 2014
% of Total Primary Energy Consumption
Source: Euromonitor International from BP Statistical Review
of World Energy
Australia’s CO2 emissions per unit of output stood at 290 grams
per US$ in 2014, down from

29. 443 grams per US$ in 2009:
tonne of energy consumed in
2009 to US$12,502 in 2014;
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5.0% by 2020, from the 2000
level. However, the abolition of carbon pricing in July 2014, to
help households and
businesses cut down on their energy costs, has raised serious
doubts about its ability to meet
the target. The government, nevertheless, remains hopeful of
achieving the target through the
Emissions Reduction Fund (ERF), which was established in
November 2014. The fund seeks
to provide AUD2.6 billion in financial incentives to companies
over the following four years to
encourage them to voluntarily reduce emissions.

30. Chart 15 Total and Per Capita CO2 Emissions in Australia:
2009–2014
Source: Energy Information Administration of the US
Government, International Energy Annual
Note: CO2 emissions encompass the consumption and flaring of
fossil fuels.
Australia is prone to natural disasters, particularly storms and
wildfires:
-DAT estimates, the January 2013 storm
affected 7,500 people and brought
economic damages amounting to US$2.0 billion. Meanwhile, the
wildfire that took place in
October 2013 affected 990 people and caused damages worth
US$268 million, according to
the same source. Water shortage is currently not a significant
problem in Australia.
DEFINITIONS
Corruption Perceptions Index relates to perceptions of the
degree of corruption as seen by
business people and country analysts.
Energy Efficiency indicates the value of gross domestic product
produced per tonne of oil

31. equivalent of energy consumed.
Foreign Direct Investment (FDI) is investment made to acquire
a lasting interest in or effective
control over an enterprise operating outside of the economy of
the investor.
FDI Inflows are the net value of inward direct investment made
by non-resident investors in
the reporting economy, including reinvested earnings and intra-
company loans, net of
repatriation of capital and repayment of loans.
FDI intensity measures FDI inflows as percentage of total gross
domestic product (GDP).
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Gross Fixed Capital Formation (GFCF) equals acquisition less
disposals of fixed assets,
improvement of land, change in inventories and acquisitions
less disposals of valuables.
Gross Value Added (GVA) is the value of output less the value
of intermediate consumption. It

32. is calculated without making deductions for depreciation of
fabricated assets or for depletion and
degradation of natural resources.
House-Price-Income Ratio is the ratio of the cost of a typical
upscale housing unit of 100
square metres compared to the country’s GDP per capita.
Net Migration is the difference between the number of
immigrants into and emigrants from the
area during the year.
Old-Age Dependency Ratio is the percentage of the population
aged 65+ (retired) per
population aged 15-64 (of working age).
Openness of the Economy is reflected by exports as a
percentage of total GDP. More than
50.0% is very open; 25.0%-49.0% is open; 6.0%-24.0% is
relatively open; and 0.0%-5.0% is
relatively closed, high barriers to trade.
Political Stability and Absence of Violence Index reflects a
better score in a higher position
and measures the perceptions of the likelihood that the
government will be destabilised or
overthrown by unconstitutional or violent means (including
domestic violence and terrorism).

33. Public Debt is total gross debt owed by any level of government
(central government, local
government, social security funds). Debt is reported at values
outstanding at the end of the year
and is consolidated between and within the sectors of general
government - a loan from one
level of government to another represents both an asset and an
equal liability for the
government as a whole and so it cancels out (is "consolidated”)
for the general government
sector.
Unemployment Rate represents unemployed population as a
percentage of the economically
active population, also known as the labour force (the total
number of people employed plus
unemployed).
Voice and Accountability Index captures perceptions of the
extent to which a country's
citizens are able to participate in selecting their government, as
well as freedom of expression,
freedom of association, and a free media. A high ranking
reflects a high score in the index.
Youth Unemployment Rate refers to the unemployed population

34. aged 15-24 as a percentage
of economically active population aged 15-24.