major macro economic indicators
|2020||2021||2022 (e)||2023 (p)|
|GDP growth (%)||-2.2||4.9||3.4||2.2|
|Inflation (yearly average, %)||0.8||2.9||6.6||5.1|
|Budget balance (% GDP)*||-6.6||-1.5||-1.6||-1.8|
|Current account balance (% GDP)||2.4||3.1||2.1||0.7|
|Public debt (% GDP)*||57.2||58.4||56.7||58.6|
(e): Estimate (f): Forecast *Fiscal year 2023: July 2023 - June 2024
- Geographic proximity to dynamic Asian economies, member of RCEP
- 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 (183% of gross disposable income)
- Shortage of infrastructure due to the country’s vast territory
- Vulnerable to climate change (bushfires and droughts)
- Disparity between federated states
Accelerated recovery on economic reopening
Growth is set to accelerate modestly in 2022, as Australia continues to reopen its economy and relax border restrictions. High vaccination rates provide the basis for Australia to move ahead with a “COVID normal” plan. Nevertheless, the possibility of a further setback from another outbreak is a major risk to Australia’s economic outlook. Looser restrictions should contribute to a firmer recovery in household consumption (53% of GDP) in 2022, supported by sustained job recovery and higher accumulated savings. Increased savings had helped strengthen households’ balance sheets over the second half of 2020 and the first quarter of 2021, but the household savings ratio rose again in the September quarter of 2021 after falling to 9.7% in the June quarter, as the Delta-variant outbreak temporarily constrained consumption opportunities.
Household borrowing has increased, lifting outstanding household debt to 126.1% of GDP (and 183.2% of disposable income) in Q2 2021, and may constrain household spending growth. Part of the rising household indebtedness is linked to the housing market rebound amid record-low interest rates. Sharper growth in housing credit raised concerns about financial stability, prompting tighter home lending restrictions. Barring further intervention of the authorities, such as tighter debtto-income limits on loans or interest rate hikes, the housing market is set to continue growing, which will be positive for the construction sector (7% of GDP). Mining (10% of GDP) is expected to stay in a position of strength as global commodity prices remain at multi-year highs. Long-term electrification trends also benefit lithium and nickel mining firms. Meanwhile, tourism (3.1% of GDP in FY2018-19) is expected to show a gradual recovery as international travel picks up in 2022.
Inflation remains low, despite the increase in 2021 reflecting higher oil prices and global supply chain disruptions. Wage growth remains modest, especially in the public sector. Furthermore, economic reopening and border restrictions easing may attract more temporary workers back into the workforce, helping a rise in the labour participation rate that should limit upward wage pressures.
Meanwhile, growth in Australian exports (25% of GDP), dominated by resources and energy (78% of total exports), should remain robust amid high commodity prices and continued global recovery. However, China’s efforts to limit steel output and diversify import sources for iron ore, and a further recovery in Brazilian supply, would negatively impact Australian iron ore prices. High freight fees would weigh on resource firms’ profitability.
Budget deficit to shrink
Government revenue is expected to grow faster than expenditure, helping to reduce the budget deficit. Stronger-than-expected receipts helped narrow the cash deficit in 2020-21 from a projected AUD 161 billion (-7.8% of GDP) to AUD 134 billion (-6.5% of GDP). For 2021-22, the AUD 589.3 billion budget (27.6% of GDP) includes an additional AUD 7.8 billion in tax cuts for low-to-middle income earners, an additional AUD 20.7 billion in business tax relief, and an additional AUD 15.2 billion over ten years to finance infrastructure projects. Public debt is still expected to increase, but external risks should be limited as foreign shareholding of Australian Government Securities (AGS) fell from 53.5% in June 2020 to 48.8% in June 2021, partly due to the Reserve Bank of Australia’s bond purchasing programme.
Australia has been recording current account balance (CAB) surpluses for consecutive quarters since Q2 2019, supported by a growing trade surplus which, in turn, is backed by strong commodity exports. We expect the CAB surplus to be maintained in 2022, albeit smaller in scale, due to a potential return to a services trade deficit as border control easing should boost travel services imports. Extended trade tensions between China and Australia, however, should continue to weigh on some Australian exports to China, including coal. Meanwhile, the investment income deficit should shrink in 2022 as direct investment picks up, though deteriorating China-Australia relations could constrain Chinese investment growth in Australia.
Tight race expected for 2022 federal election
The centre-right Liberal-National coalition, led by prime minister Scott Morrison, has held a slim majority in the House of Representative (77 out of 151 seats, or 50.9%), with opposition Labour Party at 45% (68 seats). In the Senate, which is vested with significant power, the governing coalition has held 47% of seats, and Labour 34%, with minority parties (19%), particularly the Greens, holding the balance of power. Support for Morrison has waned and remained fragile, but the Labour Party is not in a strong position to gain more support as pre-pandemic issues such as climate policy and political scandals are likely to resurface ahead of the polls (expected to be held between March and May), which could weaken government stability..
Last updated: February 2022
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 proceedings. Parties in the Federal Court and Federal Circuit Court must file a “genuine steps” statement. 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 four to six 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 50,000 Tasmania (Tas), AUD 75,000 Western Australia (WA), AUD 100,000 (NSW, Vic, South Australia (SA)), AUD 150,000 (Qld) or AUD 250,000 (Australian Capital Territory (ACT), Northern Territory (NT)). 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 250,000 in the NT; AUD 250,000 in ACT; 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.
Bankruptcy: creditors who have a judgment debt in excess of $5,000 can serve the debtor with a bankruptcy notice. The debtor must pay the debt or apply to set aside the bankruptcy notice within 21 days of service, otherwise the debtor will be presumed insolvent. The creditor can apply to the Federal Circuit Court to bankrupt and appoint a bankruptcy trustee to the debtor’s estate. The trustee collects, protects and realises the debtor’s assets into cash, keeps the creditors informed about the debtor’s affairs and distributes any proceeds of sale of the debtor’s assets. Generally, bankruptcy lasts for three years, but can be extended if the debtor does not co-operate with the trustee.