Sunbathers enjoy Bondi Beach in Sydney, Australia

More than 8 million tourists now flock to Australia every year

Trade surpluses are unusual for Australia: since 1971, exports have exceeded imports in less than a quarter of the monthly trade figures. But a rebound in commodity prices after several years of steady decline has helped boost export earnings, swinging the trade balance from consistent deficits to strong surpluses.

And while export values of iron ore and coal have risen strongly, foreign demand for Australia’s education and tourist services is strong too and a big boost is coming from sales of liquefied natural gas. 

Australia’s export revenues have risen 23 per cent in a year and a record surplus of AUD4.5 billion in December 2016 has been followed by further positive balances that have helped lift nominal GDP growth to 7.7 per cent, compared with 1.8 per cent a year earlier. 

Education is Australia’s third-largest individual export, behind iron ore and coal

Foreign demand for the country’s major resources exports remains strong. Even though China’s growth is slowing, reforms there have replaced costly and inefficient domestic production with higher-grade imports, especially for iron ore. 

Most of Australia’s new capacity to meet that demand is now operative, but the next phase of its resources is just beginning. Over the past year, as major new liquefied natural gas (LNG) facilities came into operation, LNG export volumes rose by 40 per cent. A further 24 per cent lift is forecast for the next 12 months.

This growth in LNG exports has added at least half a percentage point to annual real GDP growth and Australia is set to overtake Qatar as the largest LNG exporter by 2019.

But resources are not the country’s only exports showing strong growth. Services exports have risen by 5 per cent over the past year, with education – the largest services category – growing by around 18 per cent to AUD24 billion a year. 

Instead of pulling GDP down by about three-quarters of a percentage point, as was the case in 2012, services exports now contribute a quarter-point to growth.

Education is Australia’s third-largest individual export, behind iron ore and coal, until LNG overtakes it. China and India account for about 40 per cent of international student enrolments, and because the Chinese mostly take university-level studies rather than vocational or English-language courses, they typically stay in the country longer and spend more.

Tourism is Australia’s other major service export, earning AUD18 billion in the year to June 2017, with annual arrivals rising 9 per cent to 8.5 million. Asian demand drives growth here too as middle-class incomes rise, but US visitors were up 16 per cent. We estimate that Chinese visits to Australia could increase from 1.3 million annually now to more than 2 million by the mid-2020s.

Australia’s agricultural exports have also fared well over the past year, rising by 21 per cent, but that weather-related boost will likely prove temporary, even if Asian demand should continue rising.

The reason Australia’s trade surpluses are not even larger is that import values rose 6 per cent over the past year. That partly reflects higher oil prices, but also stronger purchases of foreign consumer and capital goods. If this suggests that domestic demand – mainly consumption and investment – is picking up, then smaller trade surpluses are not necessarily negative.

This research was first published on 24 August 2017.
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