Our comprehensive assessment of Australia's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Australia, as well as the latest industry developments that could impact Australia's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Australia before your competitors.
Australia Country Risk
Economic activity in Australia shows signs of rebounding from its lowÂ in Q114, even as the pull-back in mining investment remains underway. The strong performance by Australian exports lifted Q114 real GDP growth to 1.1% quarter-on-quarter (q-o-q) in real and seasonally-adjusted terms, and we have upgraded our 2014 growth forecast to 2.3% on the back of these figures. However, our growth forecast remains below consensus, given a dimming outlook for iron ore and coal. Meanwhile, other sectors are unable to pick-up the slack as narrowing profit margins dampen businesses' appetite to invest and hire.
We believe that the housing market remains precarious, as housing affordability continues to edge to new lows. Our downbeat outlook for the Australian job market, which leadsÂ us to forecast unemployment to edge up to 6.5% by the end-2014, would inevitably weigh on the...
Australia Industry Coverage (23)
BMI View: Â The Australian agriculture sector is still recovering from a decade of subdued production growth due to extreme weather and a lack of investment. The industry is expected to remain buoyant in 2014 and 2015 , largely supported by export demand from Asia and elevated grains and oilseeds prices . In the longer term, we see major export growth opportunities in the sugar and livestock sectors. Although Australia will face stiff competition from Asian countries such as Thailand for sugar, and from the US and Brazil for meat, the country will remain a key player in those industries. Apart fro m growing competition , Australia will have to face high production costs and a vulnerability to extreme weather .
Although July 2014 was second only to July 2013 in terms of all-time July sales records for Australian new vehicles, BMI believes that the near-term outlook for the industry remains clouded. In July, the country registered a slight 0.4% annual decline in new vehicle sales to 89,867 units, according to figures from the Australian Federal Chamber of Automotive Industries (FCAI). Year-to-date, the 7M14 sales figure was down 2.1% year-on-year (y-o-y), at 649,818 units.
Breaking down the headline 7M14 sales figure, there have been declines across passenger cars (-4.6%), light commercial vehicles (-5.3%) and heavy commercial vehicles (-4.3%). The one exception to the general market malaise remains the sports utility vehicle (SUV) segment, which has seen growth of 4.1% y-o-y. SUV sales totalled 204,244 units over the January to July period, now accounting for some 31.4% of the total market. In particular, it appears to be...
Australia Consumer Electronics
BMI View: Â High incomes and strong demand for premium devices make Australia a lucrative market for consumer electronics vendors. However, t he outlook for the Australian consumer electronics market is weakened by the maturity of the market, with high penetration rates for PCs, HD TV sets and smartphones leaving diminished prospect for rapid growth compared to the majority of APAC markets. Furthermore, the economic outlook is weakening, with currency depreciation a medium term downside risk that could affect confidence levels and the affordability of imported device . Â Despite these limitations on growth v endors...
Defence & Security
Australia Defence & Security
BMI View: Â While there are limited major security threats to Australia over the short to medium term, BMI expects it to continue to play a prominent role in international peacekeeping military campaigns. This policy is currently being played out in Australia's recent military response to the threat posed by the Islamic terrorist group ISIS in the Middle East. We expect such strategic military objectives to continue to fuel arms procurements, particularly from its closest trade partner the US, and drive an increase in overall defence expenditure for the remainder of our forecast period.
Australian Prime Minister Tony Abbott has estimated that the country's involvement in Iraq is likely to cost half a billion dollars each year, and moreover that some personnel have already...
Food & Drink
Australia Food & Drink
Although Â we are revising up our real GDP growth forecast for Australia for 2014 to 2.8% from 2.3% previously, we remain below consensus, and expect growth to slow to 2.3% in 2015 as the strong construction picture struggles to counteract the weakness in external demand.
High levels of household debt, threats of higher taxes, softening job market and income outlook, together with possible declines in house prices lead us to maintain our subdued outlook for private consumption for 2014. As a result, we continue to see a shift of consumption habits towards private labels in Australia over the coming years as a growing number of consumers acknowledge private labels as a very compelling alternative to proprietary branded goods.
Headline Industry Data (local currency)
2014 per capita food consumption = +0.8%; forecast to 2018Â = +1.3%Â ...
Australia Freight Transport
With growth across the Australian freight mix set to be fairly muted in 2015, it is clear that the ongoing weakness in Chinese demand growth is keeping commodity prices subdued, and global disinflation trends are also remaining intact. With China such an important trade partner to Australia, the latter cannot help but see its freight industry detrimentally affected as a result.
Having said that, we revised up our real GDP growth forecast for 2014 to 2.8% from 2.3% previously in September 2014, given the stronger-than-expected growth rate seen in H1 2014. However, we remain below consensus, and expect growth to slow to 2.3% in 2015 as the strong construction picture struggles to counteract the weakness in external demand.
In 2015, the outperformer by mode is set to be road freight, seeing 2.70% gains and edging ahead of both rail and air (2.58% and 2.30% respectively). In what represents something of a mixed bag in terms...
Australia Information Technology
BMI View: Due to high labour costs BMI believes Australian enterprises could be among the early adopters for AI applications such as IBM's Ask Watson service, which has already been trialled by ANZ Bank. Emerging technologies aside the growth outlook is relatively weak in Australia. This is in part a consequence of market maturity, meaning growth will underperform the APAC average, which is weighted to emerging markets but there is also macroeconomic downside as BMI expects economic growth to slow over the medium term.
Headline Expenditure Projections
Computer Hardware Sales:Â AUD7.9bn in 2013 to AUD8.2bn in 2014, up 3.6% in local currency terms. Slowdown in tablet demand due to market saturation will be offset by a stabilisation in desktop and notebook sales in 2014 due to XP support withdrawal and...
BMI View: Â We do not expect Australia's construction sector to grow at the same pace in 2015 as in H114 . Our view is underpinned by the poor macroeconomic fundamentals for construction in Australia, the obstacles preventing Australian governments from raising sufficient funds for their infrastructure plans, and the growing lack of competitiveness in Australia's construction sector.Â Although we do not expect Australia's construction sector to grow at the same pace in 2015 as in H114, we still expect the sector to grow at a relatively respectable rate. Our view is underpinned by the condu c ive monetary conditions for construction, a sustained recovery in homebuilding activity, and the potential for greater construction activity from the private and public sectors.
BMI View: Â Recent reports confirm our view that premiums will rise at a measured pace through the forecast period. In USD terms, in fact, currency movements will likely cause premiums to contract. However, most of the insurers will continue to generate levels of profitability that are more than satisfactory. In the non-life segment, volumes should rise broadly in line with nominal GDP. In the life segment, the ongoing development of the superannuation system will underpin the rise in premiums over time.
As of late 2014, it remains to be seen what will be the final recommendations of the Financial System Inquiry, whose remit includes both life and non-life insurance. The Inquiry is also looking at Australia's massive superannuation funds, whose combined assets under management (AUM) exceeded AUD1.8tn at the end of June. In relation to life insurance, the focus of the...
Australia Medical Devices
BMI Industry View : The Australian market has performed well in recent years, driven by a strongly-growing economy and the requirements of an increasingly elderly population. However, a weakening of the Australian dollar over the next five years is expected to bring the momentum in the market to a halt.
Headline Industry Forecasts
At US$4,903.9mn, the market ranks amongst the top 20 largest in the world, while per capita spending is on a par with European markets such as the Netherlands or Finland. Growth for the 2013-2018 period is expected to be subdued; estimated at a CAGR of 1.2% in US$ terms which will raise the market to US$5,206.9mn by 2018.
Since 2001, medical device imports have seen a period of...
BMI View: Â Australia will see subdued growth in both production and consumption of most metals as a weakening global commodity market continue s to take its toll on the economy. While significant additional global monetary stimulus should help to boost metal prices in the near term, the bout of loosening measures will be insufficient to stem the slowdown and the medium-term outlook for metals remain s weak.
We expect a slowdown in the metals industry in Australia on the back of slowing demand in China. Weak demand from slowing domestic construction and a cooling...
BMI View: Australia's mining sector is set to suffer the painful spillover effects of a sharp investment slowdown due to the cooling of China's economy over the coming years.
Australia has been among the biggest beneficiaries from the China-led commodities boom over the past decade, attracting huge amounts of investment into the minerals space. Driven by China's voracious appetite for key commodities such as coal and iron ore, the value of Australia's mining industry had increased by more than six-fold from USD24bn in 2003 to USD154bn in 2013. As a result, this has seen the sector's share of GDP rising from 4.5% to 10.2% over the same period. However, the boom years in the mining industry is over. With China's economy on course for a rude slowdown over the coming years, Australia's mining sector is set to suffer the painful spillover effects of a sharp investment slowdown.
Oil & Gas
Australia Oil & Gas
BMI View : Â Â Australia is set to become a major player in the global liquefied natural gas (LNG) market by the end of the decade. However, we see waning investment sentiment, which will slow growth momentum. The country will also have to contend with a growing reliance on oil imports as domestic crude oil production experiences weak growth while refining outlook is bleak in face of regional competition.
While Australia's hydrocarbons resource base is strong, BMI's latest Australia Petrochemicals Report does not envisage it will lead to investment in new petrochemicals capacity over the medium-term due to infrastructural and cost barriers.
The country's refining outlook is poor due to declining oil production in fields that had supplied the country's refining sector located in the east. The relatively unsophisticated refining sector is increasingly uncompetitive and by 2016 refining capacity will be half the peak seen in 2003 due to plant closures. On the upside, it appears that most of the refineries remaining in Australia intend to stay in operation. Reduced refinery output will limit naphtha availability for local petrochemicals production, although naphtha is not the main source of feedstock.
Gas availability is set to increase dramatically, although much of this will be exported. Opportunities for using ethane in...
Pharmaceuticals & Healthcare
Australia Pharmaceuticals & Healthcare
BMI View: Â The Australian government will continue to use drug price controls as a means to reduce healthcare expenditure. Our view is based on the government's runaway budget deficit and the inevitable increased demand for medicines as the population ages and incidence of long-term diseases rise. Consequently, government price controls will continue to present downside risk to drugmakers selling their products in Australia. The need to curb growing healthcare expenditure and high medicine prices will result in the government targeting medicine prices.
Headline Expenditure Projections
Pharmaceuticals: AUD12.95bn (USD12.50bn) in 2013 to AUD13.48bn (USD12.40bn) in 2014; +4.0% in local currency terms and -0.8% in US dollar terms, due to...
BMI View: Australia ' s power sector is facing unprecedented changes and challenges. Although demand for electricity remains strong, consumers are increasingly satisfying their need in the form off-grid solar energy rather than on-grid electricity from traditional sources of energy such as coal and gas, severely affecting the profitability of traditional providers and forcing the closure or mothballing of coal and gas-fired power stations. While coal and thermal generation will remain buoyant over the next decade, helped by changes in government policy, plentiful supplies of coal and shale, and the development of LNG stations, the most significant market opportunities will lie in renewable s .
Australia Real Estate
BMI View: Â Australia's commercial real estate market is buoyed by strong fundamentals, with a mature economy, highly skilled workforce, transparent regulation and a welcoming business environment. However, the economy has been posting slower growth; and a slowdown in demand in China, a major destination for Australia's mineral exports, could have an indirect effect on Australia's economy. Overall demand for commercial real estate is expected to remain low because of this, and we are forecasting no increase in rental rates in 2015 and 2016.
The economic outlook is set to remain blighted by the impact of the Chinese slowdown and government austerity, as well as a lack of consumer confidence. We see real GDP growth coming in at 2.4% in 2014 and 2.3% in 2015, well below the 3.8% achieved in 2012. Although there will be a...
BMI View : We are maintaining our 2015 forecasts for non-hydropower renewable generation and capacity in Australia this quarter as we had previously incorporated the effects of a decrease in investment. However, we are revising down our long-term forecasts due to continued political uncertainty and the ongoing decline in new investments.
We are maintaining our 2015 growth forecast for non-hydropower renewable generation in Australia this quarter at 8.7%. This is significantly lower than the five-year historical average growth rate of 11.7% and is largely due to the uncertainty surrounding the renewable energy target (RET) since late-2013. We have revised down our long-term forecasts this quarter on the back of continued political uncertainty and the ongoing decline in new investments. We now forecast non-hydropower renewable capacity to grow at an average rate of 4.3%...
In 2015, we expect to see a not too dissimilar growth picture than 12 months previous across the country's major ports. Welcome news does arrive from the fact that we have revised up our real GDP growth forecast estimate for 2014 to 2.8% from 2.3% previously, given the stronger-than-expected growth rate seen in H1 2014, but we do expect growth to slow to 2.3% in 2015 as a weakness in external demand becomes more pronounced. This will temper any gains made in the Australian shipping sector this year.
Leading the way in terms of year-on-year (y-o-y) tonnage growth will be the port of Fremantle (at 3.40%), which will also come in top of box throughput - 3.70% and slightly ahead of the port of Sydney (3.60%). The port of Melbourne will finally see positive growth return after two years of stagnation.
Australian real GDP came in at 1.9% quarter-on-quarter (q-o-q) annualised in Q2 2014, slightly higher than consensus...
BMI View : The Australian telecommunications industry is one of the highest value markets in the Asia Pacific region and even the world, as a result of high incomes and strong uptake of higher value services such as broadband and smartphone handsets. However, growth opportunities will be Â severely limited in the years ahead due to the highly saturated nature of the market. We believe that 4G offerings will Â take centre stage, given the proliferation of smart devices and growth in demand for high-speed data services , and...
BMI is forecasting substantial growth in the Australian tourism market over the period to 2018, with both inbound and outbound tourism set to increase on the back of domestic economic expansion and wider growth throughout the Asia Pacific region. As the number of visitors increases, we expect to see more tourism-related expenditure and an improvement in industry value, though the strong Australian dollar may deter potential visitors and indeed investors.
Arrivals to Australia have largely recovered from the global credit crunch, which impacted heavily on arrivals from many key source markets, particularly long-haul Western countries such as the UK and the US. As the global economic recovery gathers pace, we expect to see healthy growth in arrivals from all regions, though the Asia Pacific market will continue to dominate. The total number of visitors to Australia is expected to increase from 6.9mn in 2014 to 9.3mn in...
BMI View: This quarter we have substantially updated and expanded our forecasts across various areas of the water sector. We now cover mains and non mains consumption and extraction, water losses, desalination production and household connections to mains networks. Our new forecasts reflect our overall expectation that water demand in Australia will continue to rise, putting additional pressures on the dwindling freshwater reserves, and stimulating investment in desalination and water treatment and reuse infrastructure.Â
We believe that the current levels of water usage, both for irrigation and livestock is unsustainable and is putting extreme pressure on an already beleaguered water system struggling to cope with limited supplies and soaring demand. In addition to the issues facing agricultural users, we also feel that the burgeoning shale gas sector in Australia could be severely hampered...