Australia’s top trading partner, China is noticeably slowing while the rest of the world struggles to pick up speed.
So which markets should Australian exporters target in 2016?
Two-way trade with China totalled more than $152 billion in 2014, and with the China Australia Free Trade Agreement (ChAFTA) coming into force in December 2015 exporters might hope for more gains in the world’s second-biggest economy.
However, China’s latest gross domestic product (GDP) data showed its worst quarterly performance in 25 years, with the communist giant expanding by 6.8 per cent in the fourth quarter of 2015, down from 6.9 per cent the previous quarter.
For the calendar year, GDP expanded by 6.9 percent, below Beijing’s 7 percent target and missing the official estimate for the second straight year.
According to ANZ Research, China’s economy could slow further to a 6.4 percent expansion this year and as low as 6 per cent in 2017, as the economy continues its transition from investment-led to consumption-driven growth.
Yet the figures were not all bad, with retail sales rising by an annual rate of 11 per cent in December, while average per capita urban disposable income rose by 8 per cent last year to reach US$4,740 (A$6,860).
Services on the rise
Services made up more than half of the economy last year, exceeding manufacturing, highlighting the potential for further export growth for Australian services.
This has been evidenced by the latest tourism data, which showed that a record 1 million Chinese visited Australia in the year to November 2015, up nearly 22 per cent on the previous year, with Chinese tourists injecting more than $7.7 billion into the economy.
Australia’s second-largest trading partner, Japan, narrowly avoided recession in 2015 after growth slowed in its major export markets, including China.
In its latest “World Economic Outlook” report released on January 19, the International Monetary Fund (IMF) forecast the world’s third-largest economy would expand by 1 per cent this year, up from last year’s 0.6 per cent rise, but with a slowdown predicted in 2017 to just 0.3 per cent following a planned sales tax rise that year.
However, exporters have been quick to capitalise on last year’s launch of the Japan-Australia Economic Partnership Agreement (JAEPA), which has boosted two-way trade worth around $70 billion in 2014. According to Australian Trade Minister Andrew Robb, wine, beef and grape growers have been among those to gain increased export sales, including a more than 10-fold rise in fresh table grape exports, a 24 per cent increase in fresh and chilled beef and a tripling of bulk wine sales.
Better prospects are seen for Australia’s third-largest trading partner, the United States, which according to the IMF should see GDP growth of 2.6 per cent this year and next on the back of strengthening housing and labour markets.
With two-way trade of around $60 billion in 2014, Australian exporters will be hoping that the Trans-Pacific Partnership (TPP) is ratified by the U.S. Congress this year, reducing trade barriers to the world’s largest economy, although U.S. political circles will be focused on the presidential election campaign ahead of November’s poll.
China slowdown hits South Korea
Elsewhere, Australia’s fourth-largest trading partner, South Korea, is expected by its central bank to post 3 per cent GDP growth in 2016, below its previous projection of 3.2 per cent due to a weaker external trade outlook.
With China representing around a quarter of its total exports, the slowdown in its biggest trading partner is dragging down growth in South Korea, along with lower oil prices and falling electronics demand.
However, with two-way trade between Australia and South Korea reaching nearly $35 billion in 2014, the Korea-Australia Free Trade Agreement (KAFTA) launched in December 2014 offers the potential for further export growth, from Australian automotive components to dairy and telecommunications.
Challenges ahead for Singapore
Also in Asia, Singapore was Australia’s fifth-largest trading partner in 2014, with two-way trade of around $30 billion. ANZ Research expects the city-state to post a 2.3 per cent GDP expansion in 2016, up from an estimated 2.1 per cent last year, but the latest export data showing a drop in non-oil domestic exports shows the challenges ahead for the trade-dependent economy.
According to the IMF, the world economy should pick up speed this year with estimated GDP growth of 3.4 per cent in 2016 and 3.6 per cent next year, however risks remain tilted to the downside including China’s rebalancing, lower commodity prices and rising US interest rates.
Next big growth market
For exporters seeking the next big growth market, India is set to outperform as the fastest growing major economy with an estimated GDP gain of 7.5 per cent this year and next, although ANZ Research has described its growth recovery as “patchy.”
The “ASEAN 5” nations of Indonesia, Malaysia, the Philippines, Thailand and Vietnam are also expected to improve with GDP growth of 4.8 per cent this year and 5.1 per cent next year, helped by the implementation of the ASEAN Economic Community, although weaker prospects are seen for sectors exposed to the commodities slowdown.
Growth expectations among Australia’s other top trading partners of New Zealand, United Kingdom, Malaysia, Thailand and Germany also differ, with the UK expected to deliver a 2.2 per cent GDP gain this year and next compared to Germany’s 1.7 per cent.
Trade deals to boost sales in 2016
ANZ Research expects the Kiwis to do even better though, with a forecast 2.5 per cent rise in 2016 and 2.8 per cent next year, helped by improved financial conditions, a strong construction pipeline, record net migrant inflows and a tourism boom.
For Australian exporters, an improved world economy and the benefits of Australia’s recent Asian trade deals should help boost overseas sales in 2016, even while the nation’s major trading partners show mixed performance in the Year of the Monkey.
*Anthony Fensom is an experienced business writer and communication consultant with more than a decade’s experience in the financial and media industries of Australia and Asia.