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Australia / Coronavirus Insights
Growth Opportunities in the Australian Economy

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by IBISWorld
Aug 20 2020

While Australia is one of the most advanced economies in the world, its growth rate has been consistently slowing down. Over the past fifty years, Australia’s annual growth averaged 3.1% per year. However, over the past decade, this growth has slowed to an average of 2.3% per year. This includes a decline of 1.0% in 2019-20 due to the effects of the COVID-19 pandemic. Australia’s slower growth appears to be attributable to a combination of weak income growth, sluggish non-mining business investment and lacklustre productivity growth. The rate of growth in labour productivity, which represents GDP output per hour of labour, has been sliding since 2011–12. It slowed to a crawl in 2017–18 and then contracted by 0.2% in 2018–19. This demonstrates that prior to the COVID-19 shock, the Australian economy was already faltering.

As Australia stabilises in the wake of the COVID-19 pandemic, attention is turning toward recovery, and figuring out the economic growth opportunities that lie ahead. Emerging technologies, advanced manufacturing, the digital revolution, new mining projects and service outsourcing provide just a few examples of major opportunities that can be seized by Australian businesses today and in the years ahead.

The economy today

Although Australia is commonly regarded as an economy based on primary industries such as Mining and Agribusiness, these businesses only contributed 10.7% of Australia’s GDP over the year through March 2020. In contrast, service industries such as Education and Training, Health Services and Finance accounted for 55.7% of GDP.

The transition to a service-based economy has been a common trait across most developed nations over the past fifty years. This transition has occurred at the expense of manufacturing industries, such as Motor Vehicle Manufacturing, which have been unable to compete with the lower operating costs and less restrictive regulatory frameworks of developing nations. Manufacturing is expected to fall below 5% of national GDP in 2020-21, following a consistent decline from 14% of GDP in 1975.

Despite the loss of domestic manufacturing, the living standard of the average Australian, as measured by real GDP per capita, has grown considerably. In 1971, real GDP per capita was close to $33,900. In 2020, it accounts for $72,600. This is a result of an overall improvement in average incomes, which have grown as manufacturing industries have been replaced by more lucrative industries.

The MyIBISWorld Industry Wizard has been used to create the list below, which identifies the fastest growing industries over the past five years. This intuitive online tool, which contains data and information from IBISWorld’s Industry Research Reports and Risk Ratings Reports, enables you to search, query and save data to support your sales, marketing or investment strategies.

The industries presented on this list show underlying growth opportunities for the Australian economy, which are further outlined below.

The digital revolution

Rapid technological growth has created enormous revenue growth for a range of related industries, such as Internet Publishing and Broadcasting, Online Shopping and Online Education. However, employment in all of these industries has grown at a weaker rate than their revenue. The MyIBISWorld Industry Wizard tool shows the revenue per employee and wage growth for these industries. Interestingly, revenue per employee across all of these industries has grown considerably, while the wage per employee has grown at a slower rate. This suggests that the benefits of productivity growth in these industries are flowing through to business profitability, rather than labour expenses.

Mining boom 2.0

Several mining industries are present in the growth industries listed above, including Oil and Gas Extraction, Mineral Exploration and Salt, Lithium, and Other Mineral Mining. A common factor among these industries is their exposure to growth opportunities associated with the clean energy revolution. Lithium and nickel are key commodities used in battery manufacturing, and will be a critical component of the ongoing electrification of the economy in the coming decades, including the uptake of electric vehicles. Australia is the world’s largest producer of lithium, and has mineral reserves covering 90% of the elements required in lithium-ion battery chemistry.

Australia has a key opportunity to expand beyond traditional minerals extraction and exports, by increasing downstream manufacturing capabilities and associated industry value chains. According to the Australian Trade and Investment Commission, Australia currently earns only 0.5% of the ultimate value of its lithium exports in the Battery Material Mining industry. Some 99.5% of the value of Australian lithium ore is added through offshore chemical processing, battery manufacturing and product assembly. Recognising this opportunity, the Federal Government has already begun exploring potential sites for a new battery cell manufacturing industry in Australia.

The Oil and Gas Extraction industry is also exposed to the clean energy revolution. Although it is a fossil fuel, natural gas is projected to play a medium-term role in the global transition towards intermittent energy generation through renewable resources. Unlike coal-fired power stations, natural gas generators can be rapidly activated and de-activated at minimal cost, making them an ideal accompaniment to variable solar and wind electricity generators. In addition, natural gas generators emit only 50% of the carbon content of equivalent coal-fired generation. Australia’s Liquefied Natural Gas Production industry has had a wave of investment over the past decade. Although the industry has recently suffered a historic decline in natural gas prices due to the effects of the COVID-19 pandemic, long-term opportunities continue to exist for Australia to benefit from rising demand for natural gas across Asia in the coming decades.

Advanced manufacturing

Battery cell manufacturing opportunities account for just one part of a range of next-generation manufacturing industries that can be developed in Australia. Over the past fifty years, foreign manufacturers have outcompeted their Australian peers through cheap labour and weak environmental regulations. However, over the next fifty years, technology change is forecast to erode the advantages of low-cost producers, and enhance the unique competitive advantages of developed economies.

A key element of advanced manufacturing is its use of bleeding edge technologies, such as artificial intelligence, robotics, automation, machine learning, nanotechnologies and advanced materials. Accelerated automation of manufacturing processes is forecast to reduce the need for labour in many manufacturing industries, reducing foreign producers’ labour cost advantages. In addition, Australia’s funding for research and development, in combination with its ability to protect proprietary technologies, is likely to make these new technologies available earlier in Australia, relative to less-advanced economies.

Currently, only six manufacturing industries are in the growth stage of their industry life cycle. These industries include Spirit Manufacturing, Shipbuilding and Repair Services and Cooking Oil and Margarine Manufacturing. The gradual introduction of advanced manufacturing technologies is projected to significantly increase the growth prospects of the manufacturing sector in the coming decades.

Service outsourcing

Perhaps the most important growth opportunity for the Australian economy is the outsourcing of personal and household services. Technology has made outsourcing easier over the past decade, opening the door to a range of new industries. Australian households, particularly younger demographics, are increasingly leveraging new platforms to outsource activities that were previously done individually. For example, consumers have outsourced driving to the Ridesharing Services industry, food preparation to the Online Food Ordering and Delivery Platforms industry, and even romance to the Dating Services industry. This transition is forecast to accelerate in the coming decades, as technology advancements such as artificial intelligence and nanotechnology expand the range of consumer work that can be outsourced. A range of exciting new industries, built on the outsourcing and specialisation of every-day human needs, is projected to drive growth opportunities in Australia in the decades to come.

IBISWorld reports used to develop this release:

For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647