Here’s how Australia could continue to ride the Asian boom
GETTY IMAGESThe last decade has seen unprecedented economic development and industrialization across Asia. And Australia, thanks to its rich natural resources and proximity to the region, has been perfectly positioned to benefit from this growth.
Asian demand for commodities such as iron ore, used in the production of steel, has fueled a mining boom in Australia and helped the country achieve a staggering 25 consecutive years of economic growth.
It has also tied Australia closely to the Asian market, with 74% of Australian exports shipping to Asia in 2015. While this was slightly down on 2014, there are positive shifts in the makeup of trade that should see it strengthen over time.
As NAB Economics noted in a research report this year, there is “ongoing progress in lifting commodity export volumes, diversifying the commodity base and lifting earnings in services trade.”
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Sources: Australian Department of Foreign Affairs and Trade; Brookings Institute
Looking ahead, Asia remains the world’s fastest growing region, and its increasing influence is undeniable. Asia contributed 39% of global GDP in 2014, up from 23% in 1990. Oxford Economics forecasts this share will rise to almost 45% by 2025.
Riding the next wave of growth
The continued urbanization and industrialization in emerging economies is projected to increase Asian demand for commodities, according to Australia’s Department of Industry, Innovation and Science.
And as Asia’s major economies mature, Australia is well positioned to grow its energy, agriculture, and services exports to Asia’s large and powerful middle class.
Because of rapid growth in the region, Asia is expected to host 64% of the global middle class by 2030, according to Brookings Institute research. This demographic shift bodes well for Australian service exports, in particular.
The services sector now accounts for 59% of Australian GDP, according to the Reserve Bank of Australia, and has contributed 0.5% to Australian economic growth over the last two years. This means increasing the sector’s share of exports will have a significant impact on the broader economy.
A weaker Australian dollar is also expected to help matters.
These medium- and long-term trade dynamics should ensure the Australian economy is able to ride Asia’s growth for some time yet.
If you’re looking to access the Australian market, consider the iShares MSCI Australia ETF (EWA), or broaden your search to other countries.
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