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World > Australia > Australia > Economy (Notes)

Australia - Economy (Notes)


ECONOMY
Australia's advanced market economy is dominated by its services sector (72% of GDP), yet it is the agricultural and mining sectors (8% of GDP combined) that account for the bulk (52%) of Australia's exports. Australia's comparative advantage in the export of primary products is a reflection of the natural wealth of the Australian continent and its small domestic market; 21 million people occupy a continent the size of the contiguous United States. The relative size of the manufacturing sector has been declining for several decades, but has now steadied at around 10% of GDP. Australia currently enjoys a record-high terms-of-trade (TOT) that is 30% above its long-run average, reflecting the rise in global commodity prices created by booming demand in China and the drop in prices for imports for manufactured goods, mainly from China

Since the 1980s, Australia has undertaken significant structural reform of its economy and has transformed itself from an inward-looking, highly protected and regulated marketplace to an open, internationally competitive, export-oriented economy. Key economic reforms included unilaterally reducing high tariffs and other protective barriers to free trade, floating the Australian dollar, deregulating the financial services sector, including liberalizing access for foreign banks, increasing flexibility in the labor market, reducing duplication and increasing efficiency between the federal and state branches of government, privatizing many government-owned monopolies, and reforming the taxation system, including introducing a broad-based Goods and Services Tax (GST) and large reductions in income tax rates.

Australia is now in its 16th year of uninterrupted economic expansion and enjoys a higher standard of living than any G7 country other than the United States. Australia's economic standing in the world is a result of a commitment to best-practice macroeconomic policy settings including the delegation of the conduct of monetary policy to the independent Reserve Bank of Australia, and a broad acceptance of prudent fiscal policy where the government aims for fiscal balance over the economic cycle. The Australian Government has zero net debt and, through the 'Future Fund', is building a net asset position to deal with future liabilities resulting from an aging population. The Australian economy is expected to grow at around 3.5% in 2007.

Two issues, national infrastructure and climate change, currently dominate thinking about economic policy in Australia. The Australian economy is booming and is operating at close to capacity with unemployment at a 32-year low of 4.2%. Both the federal and state governments have recognized the need to invest heavily in water, transport, ports, telecommunications, and education infrastructure to expand Australia's supply capacity. Australia may be coming out of the severe drought conditions it has experienced over the last 5 years, and above-average rainfall has been predicted for 2007. This should somewhat reduce the intense economic and political pressure on governments to build dams, water-recycling facilities, and desalination plants in drought-affected cities such as Brisbane, Canberra, and Perth.

The second significant issue is climate change. A recent report commissioned by the Prime Minister recommended a domestic carbon emissions trading scheme. It also recommended that Australia take an active role in developing a future global carbon emissions trading system. Regardless of the outcome of the federal election due in late 2007, Australia is now committed to adopting a domestic carbon trading system in the 2010-2012 timeframe.

The Australia-U.S. Free Trade Agreement (AUSFTA) entered into force on January 1, 2005. The AUSFTA marks the first FTA the U.S. has concluded with a developed economy since the U.S.-Canada FTA in 1988. Australia has also completed FTAs with Singapore and Thailand and is pursuing other FTAs, including with China and Japan. A burgeoning trade relationship marked by ongoing, multi-billion dollar resource export contracts and rising manufactured imports has driven FTA negotiations with China. Parallel efforts are underway with Malaysia and the Association of Southeast Asian Nations (ASEAN). The Australian Government has restated its commitment to achieving high-quality FTAs with economies in the Asia-Pacific.


Facts at a Glance: Geography - People - Government - Economy - Communications - Transportation - Military - Climate - Current Time - Ranking Positions - Australian Dollar Exchange Rates
Notes and Commentary: People - Economy - Government and Political Conditions - Historical Highlights - Foreign Relations - Relations with U.S.



Facts at a Glance
Geography
People
Government
Economy
Communications
Transportation
Military
Climate
Current Time
Ranking Positions
Australian Dollar Exchange Rates


Notes and Commentary
People
Economy
Government and Political Conditions
Historical Highlights
Foreign Relations
Relations with U.S.





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