The world economic outlook is in its most healthy state for at least 30 years.
The world economic outlook is in its most healthy state for at least 30 years.
The resurgence in Japan and the brighter prospects in Europe have helped add to the momentum that was already under way in Asia, the Americas and the emerging economies.
And the expansion is expected to continue. Consensus Forecasts expects the global economy to grow by between 3 per cent and 4 per cent over the next three-year period, while the International Monetary Fund expects a 5 per cent growth rate.
However, there are still concerns with the US over the domestic housing sector, possible trade friction with China and the usual ‘factor X’ external shock such as a security incident, financial shock or natural disaster that can effect the global economic environment.
The strength and sustainability of China’s growth continues to surprise commentators. The IMF expects China to grow by 10 per cent in 2007 with the maintenance of a growth rate in the 9 per cent to 10 per cent range thereafter.
China’s industrial growth has brought about unprecedented demand for Australian commodity exports, which at times have struggled to keep up in terms of supply.
Japan’s economic resurgence has assisted the region after years of deflation and sluggish growth. An important factor will be Japan’s willingness to continue its recent reforms, particularly in opening up the Japanese services sector in areas where Australian services exporters have a competitive advantage.
India has been a major economic growth story of the first decade of the 21st century, with Australia a key beneficiary. Our exports to India have been growing at an annual average rate of growth of almost 29 per cent (compared with China at almost 23 per cent). However, inflationary pressures and infrastructure deficiencies have caused economic commentators to be cautious about India’s medium term prospects.
The US economy has come under scrutiny not just because of fiscal and current account imbalances but also because of assumed weakness in the housing sector. The IMF has downgraded its US forecast to just over 2 per cent in 2007 (down from just over 3.3 per cent in 2006).
While Goldman Sachs economists famously predicted the rise of the ‘BRICs’ – Brazil and Russia to India and China – many other regions such as the Middle East, Latin America, the former eastern bloc economies and even Africa now are playing an important role on the world stage.
The Gulf Co-operation Council states have benefited from growth in UAE and Saudi Arabia as the region diversifies away from petroleum and into professional services, infrastructure and tourism.
Australia is well placed to take advantage of the rise of the emerging economies as we supply 17 per cent of our merchandise exports and 10 per cent of our services exports to the BRIC economies. However, a big question mark always remains over institutional reform as well as security and geo-political risks in these areas.
Australian businesses will also deal with newer forms of global engagement, with international markets as they move beyond traditional exporting and importing to engage globally through joint ventures, strategic alliances, global supply chains and licensing, franchising and international investment.
This will mean more Australian businesses will use sophisticated global strategies – in building client and customer relationships, sourcing skills, knowledge, capital and technologies – and as a result, a wider range of well-targeted Austrade service offerings will be required.
•Tim Harcourt is chief economist of the Australian Trade Commission and author of Beyond Our Shores.
