Though tourism, education and rural exports contribute nearly one-quarter of Australia’s exports, currency appreciation could pose the biggest risk for growth in these three sectors, according to Bank of America Merrill Lynch. Alexandra Veroude and Tony Morriss of BAML highlight in their May 5 research “Australia Economic Viewpoint Playing Devil’s Advocate – what could derail the export outlook?” piece that exports accounted for nearly half of Australia’s GDP over the past four years.
Australia’s tourism-related activity generated 3.2% of GDP
Veroude and Morriss highlight that exports accounted for nearly half of the growth in Australia’s GDP over the past four years. This growth was supplemented by the transition in the country’s mining boom from the investment phase to the production / export phase. Among the country’s largest exports, the tourism, education and agriculture industries contributed nearly 25% of exports in 2015-16:
The BAML analysts point out that Australia witnessed rapid tourist inflow over the past few years, thanks to the depreciating AUD. Underpinning the industry’s contributions, the analysts highlight that tourism-related activity contributed 3.2% of the country’s GDP in 2015-16.
Citing data from Tourism Research Australia (TRA), the BAML analysts note that the country could witness 12.4 million tourist arrivals by 2024-25, translating to 5.2% average annual growth over the next nine years. However, the analysts believe that any appreciation of the AUD, capacity constraints at airports and hotels, over-reliance on tourism flow from China, and prohibitive visa costs could mar TRA’s forecasts. The BAML analysts caution that in the event of tourism expenditures by international tourists and domestic households dropping by 20% in one year, Australia’s GDP would be detracted by about 0.6%.
Education contributed 6.4% of Australia’s exports
The BAML analysts point out that education is the country’s third largest export, next only to iron ore and coal. This segment contributed $19.9 billion in earnings in 2015-16, translating to 6.4% of Australia’s total exports.
The BAML analysts concur with the Department of Education and Training’s (DET) projections of approximately 950,000 international student enrollments in Australia by 2025, as the country is in close proximity to India, China, and Indonesia, which are home to the world’s largest youth populations. The analysts believe that Australia will maintain its current share of 8% of the global market, lagging the share from the two majors: the U.S. at 26% and the UK at 13%:
However, the BAML analysts caution that AUD appreciation, trade tensions, a shortage of student accommodations and increasing preference for international students to take up post-graduate degrees abroad, and trimming government funding to universities could pose risks to the DET’s 2025 projections.
Touching upon the third major contributor to the country’s exports, Veroude and Morriss of BAML highlight that rural exports, in aggregate, turned out to be the country’s second largest export in 2015-16, with 14% of total exports. Beef exports, wheat, meat excluding beef, and wool and other animal hair were among the four sub-categories in Australia’s top 25 in rural exports.
The BAML analysts point out that Australian Bureau of Agriculture and Resource Economics and Science project that farm export volumes will grow by an average annual rate of 0.4% out to 2020-21. However, the BAML analysts anticipate that production limitations, high labor and input costs could hamper Australia’s agriculture exports.