The World Bank’s ease of doing business report ranks Australia at tenth place, just two places behind the United Kingdom. Germany and Canada are four and six places respectively behind Australia. The comparison is done on the basis of various criteria including the difficulty of starting a new business, getting construction permits and obtaining credit.
The ranking for the country arrived at by the World Bank clearly illustrates that the framework available for Australian businesses is very robust and conducive to the launch of new enterprises and their growth.
However, in the last eighteen months the crash in commodity prices has put the Australian economy, and especially its exports, under a cloud. Two of the country’s major mining exports, coal and iron ore have witnessed massive declines in their prices.
But it is interesting to note that in the first quarter of 2015, exports of iron ore to China from Australia rose by 18% as compared to the same period in the last year. The increased level of exports touched 144 million tonnes. But in this same period, the price of iron ore declined by 48%, leading to a 31% decline in the value of exports. As a result the value of iron ore exports was only $9.9 billion.
A similar trend has been witnessed across many commodities with markedly lower realisations being the norm. As a result of this, investments and exploration in the mining sector have reduced considerably as businesses have deferred their expansion plans.
Despite these setbacks caused by extraneous factors, particularly the slowing down of the Chinese economy and the consequent fall in the prices of raw materials, many sectors of Australian business continue to grow. The construction industry is doing well and property prices, especially in major cities, are on the upswing.
The agricultural sector is also doing well and the increasing middle class population in Southeast Asia and China is creating a ready market for the export of agricultural produce from the country. The retail and franchising sectors also continue to grow steadily.
The country’s Gross Domestic Product grew by 2.3% in the first quarter of 2015 over the same quarter in the previous year. It is expected that the growth for the full year will be in the region of 2 to 2.5%.
Australia’s economy is dominated by the service sector which accounts for 65% of total GDP. But its economic success in the last few years was due to the growth of commodity prices. However, the mining sector accounts for only 13.5% of the economy. In the years to come, even if commodity prices do not regain their earlier trajectory, the country’s economy will continue to grow in the 2 to 3% range, as is to be expected of a developed country.
Business in the country will continue to thrive as the basic conditions that are necessary for the success of commercial enterprises are present in abundance. The service sector will play an important role in the economy. As the economy matures it will lose its dependence on commodities to fuel its growth. The advantage to the country provided by increasing commodity prices may have made it complacent.
Australian business and the economy has lived with falling commodity prices for the last year and a half and has still performed well. National Australia Bank’s ASX 300 Quarterly Business Survey – June 2015, has found that business confidence rose sharply for ASX 300 firms in the June quarter. The survey also found that capital expenditure gained momentum, although as expected, mining remained depressed.