major macro economic indicators
|2017||2018||2019 (e)||2020 (f)|
|GDP growth (%)||2.5||2.7||1.8||-1.9|
|Inflation (yearly average, %)||1.9||1.9||1.5||2.0|
|Budget balance (% GDP)||-0.8||0.0||-0.1||0.3|
|Current account balance (% GDP)||-2.6||-2.0||0.4||-1.0|
|Public debt (% GDP)||37.9||40.1||40.0||39.5|
(e): Estimate. (f): Forecast.
- Geographic proximity to dynamic economies in Asia
- Attractive quality of life, with immigration contributing to population growth
- Rich endowment of mineral resources
- Moderate levels of public debt
- High tourism potential
- Exposed to commodity price volatility (specifically iron ore, coal and LNG)
- Economy remains dependent on Chinese demand
- Substantial household debt (185% of gross disposable income)
- Shortage of infrastructure relative to the country’s vast territory
- Exposure to increasing bushfires and droughts
- Disparity between federated states
Growth rebounds but still under pressure
Growth is expected to rebound slightly in 2020. While a protracted downturn in the housing market has been a main drag on activity since 2018, signs of recovery started to emerge in the second half of 2019, with home price indexes rising in both Sydney and Melbourne. This was driven by the Australian Prudential Regulation Authority’s (APRA) move to loosen borrowing rules, as well as a total of 75 bps interest rate cuts by the Reserve Bank of Australia (RBA), which reduced mortgage repayment costs. The government also lowered income tax in July 2019, covering 70% of taxpayers. The boost in disposable income, together with an increase in household wealth due to a pick up in the housing market, will provide support for consumption growth. However, a series of large scale bushfires in December 2019 could weigh on domestic activity through declines in the tourism and consumer sectors, Household debt levels remain high at nearly two times of disposable income, or 130% of GDP. Retail sales expanded at a rate of 2.0% YOY in 2019, but this is almost flat on an inflation adjusted basis, suggesting that the contribution to GDP remains dependent on inflation projections. Investors are facing uncertainties on the external front. Main exports include mineral fuels (coal and oil), metals (iron ore, copper, gold aluminium and zinc) as well as agro-food products (meat, wheat, wool and wine). The external sector will remain under pressure in 2020 owing to the US-China trade war, which will lead to weaker demand from Australia’s largest export market; China. Commodity prices including iron ore will remain subdued, further dragging on exports. Government spending on infrastructure, which can be summarized by the $100 billion rolling infrastructure plan over 10 years, can help to offset some headwinds in 2020.
Modest public account surplus and current account deficit
The government posted a smaller-than-expected budget deficit in the financial year 2018-2019, which was equivalent to less than -0.1% of GDP. The government has committed to delivering a first budget surplus in over a decade in the 2019-2020 financial year. Reduced budgetary pressures have also provided more room for fiscal spending to improve infrastructure and provide funding to small and medium enterprises. Downside risk to the budget is stemming from a sharper deceleration in the Chinese economy and underperformance in the labour market. Public debt is expected to see a slight decline, on the back of a better government budget and modest economic growth.
The current account balance has shown a moderate deficit for decades, which, despite growing diversification, remains determined by commodity prices and demand from China. The current account recorded a surplus for the first time in 44 years in the second quarter of 2019, but this can be traced back to high iron ore prices and sustained demand from China, two factors that are set to soften into 2020. The depreciation of the Australian dollar may provide some support on the trade balance front, however this will not be enough and Australia’s current account will likely return to a deficit in 2020. The income balance will also remain in deficit, mainly due to dividend repatriation by mining companies and interest payments on external debt, which is mostly private (mining companies, banks, property sector) and denominated in Australian dollars. The current account deficit will be financed by borrowing from overseas and foreign investments in Australia.
Improved political stability after the 2019 federal election
In the federal election of May 2019, Scott Morrison led the centre right Liberal-National coalition to an unexpected victory, with a majority government securing 77 of the 151 seats in the lower house. The outcome marked the coalition’s third consecutive term in office, defeating the opposition Labour Party. New rules that require a two-thirds majority to unseat the incumbent Prime Minister imply that Scott Morrison will serve a full three-year term and achieve continuity in his economic policies, with a focus on reducing taxation and delivering a balanced government budget. In terms of foreign policy, the Prime Minister has maintained that Australia is working closely with both China and the US, but his emphasis on Beijing’s obligation to step up emission reductions and further reform its economy signal a more hawkish stance, especially following Australia’s decision to restrict Chinese companies in the development of Australia’s 5G infrastructure. The move was aimed at quelling domestic concerns over Chinese interference in Australia’s political system.
Last update: February 2020
Payment methods include:
- cash: Personal cheques and bank cheques: used for domestic and international transactions;
- credit cards;
- electronic transactions: includes point-of-sale (POS) electronic transactions, as well as mobile apps, electronic funds transfer (EFR) and internet transactions;
- EFT electronic funds and SWIFT bank transfers: the most commonly used payment method for international transactions. The majority of banks are connected to the SWIFT electronic network;
- the Australian dollar (AUD) is now also part of the Continuous Linked Settlement System (CLS), an interbank transfer system for processing foreign exchange transactions simultaneously.
Parties are encouraged to negotiate and take “genuine steps” to settle commercial disputes prior to commencing certain proceedings in the Federal Court and Federal Circuit Court. Examples of such steps include settlement negotiations and informal settlement conferences with the other party.
If the amicable phase fails, proceedings will commence. The New South Wales (NSW) Supreme Court has a special list for commercial disputes, where it will proactively manage them to ensure an efficient resolution. Similar lists also operate for commercial disputes in the Supreme Courts of Victoria (Vic), Western Australia (WA) and Queensland (Qld).
If a corporate debt is overdue, uncontested, and over AUD 2,000, the creditor may issue a creditor’s statutory demand for payment of debt demanding payment within 21 days. Unless payment or an application to set it aside is made to the Court in this time, the company is presumed insolvent. The creditor may lodge a petition for winding-up of the debtor’s company. The presumption of insolvency lasts for three months following service of the statutory demand. For individuals, the process is similar, but proceedings are required to be commenced in the Fed Circuit Court or Fed Court.
In NSW, in debt recovery proceedings, a statement of claim must be personally served on the debtor, who must then pay the debt, or file and serve a defence on the creditor within 28 days (NSW), failing which default judgment may be entered against the debtor. There are different time frames for different states. If the debtor does not pay the debt and files a defence, orders will be made by the court to prepare the matter for hearing including discovery and the preparation and exchange of evidence that will be relied upon at the hearing.
During this phase, the parties may request and exchange particulars of the claim or defence made by the other party in the form of documents referred to in the claim or defence (e.g. copies of the relevant unpaid invoices and statements of account). If discovery is ordered, the parties will be required to exchange all documents that are relevant to their case. Otherwise, all documents which the parties wish to rely upon at the hearing must be included in their evidence. Before handing down judgment, the court will hold an adversarial hearing in which the witnesses of each party may be cross-examined by the other parties’ lawyers. Typically, straightforward claims may be completed within two to four months but disputed claims may last more than a year.
If a party is not satisfied with the judgment awarded by the court, it may appeal the decision. Appeals lodged against Supreme Court decisions are heard by the Court of Appeal in that state/territory. Any further appeal thereafter is heard by the High Court of Australia. The party seeking to appeal must seek leave and persuade the Court in a preliminary hearing that there is a special basis for the appeal, as the High Court will only re-examine cases of clear legal merit.
Local Courts or Magistrates Courts (depending on the state/territory) hear minor
disputes involving amounts up to a maximum of AUD 100,000 (NSW, Vic, South Australia (SA), Northern Territory (NT), WA, and Tasmania (Tas)), AUD 150,000 (Qld) or AUD 250,000 (Australian Capital Territory (ACT)). Beyond these thresholds, disputes involving claims up to AUD 750,000 in NSW, WA, SA or Qld are heard either by the County Court or District Court. There is no County Court or District Court in Tas, NT or ACT.Claims greater than AUD 750,000 in NSW, Qld, SA, and WA are heard by the Supreme Court of each State. The Victorian County Court and Supreme Court have an unlimited jurisdiction. In the other states and territories, the Supreme Court hears claims greater than: AUD 100,000 in the NT; AUD 250,000 in AC; and AUD 50,000 in Tas.
Enforcement of a legal decision
A judgment is enforceable as soon as it is entered by the court. The plaintiff has up to fifteen years following the entry of judgment to pursue enforcement of an Australian judgment through Examination Notices, Garnishee Orders or Writs of Execution. Examination Notices force the debtor to provide information on its financial situation and assets, helping to establish a recovery strategy. The Garnishee allows the creditor to recover its debt (with interest and costs) directly from the debtor’s bank account or salary as well as from the debtor’s debtors,. Finally, the Writ orders a sheriff to seize and sell the debtor’s property in payment of the debt (together with interest and costs) owing to the creditor. As for foreign awards, enforcement in Australia is governed by statutory regimes (Pt 6 of the Service and Execution of Process Act 1992 (Cth) for judgments given in Australia and Foreign Judgments Act 1992 (Cth) for judgments given outside Australia) and common law principles. Recognition depends on whether a reciprocal recognition and enforcement agreement exists between Australia and the issuing country.
Administration: a debtor company can be placed into administration by its directors, or by creditors that are owed money. The administrator will take full control of the company, and investigate and report to creditors as to the company’s business, property, affairs, and financial circumstances. There are three options available to creditors: end the administration and return the company to the director(s); approve a deed of company arrangement through which the company will pay all or part of its debts; or wind up the company.
Receivership: a receiver is appointed by a secured creditor who holds security or a charge over some or all of the company’s assets to collect the company’s assets to repay the debt owed to the secured creditor. If the process fails, a liquidation procedure may be initiated.
Liquidation: creditors or a court may wind up a company, and appoint a liquidator who collects, protects, and realises the company’s assets into cash, keep the creditors informed about the company’s affairs and distribute any proceeds of sale of company assets. Upon completion of the liquidation, the company is then deregistered.