1.

Basic information
Australia is a developed country and one of the wealthiest in the world, with the
world's 12th-largest economy. In 2012 Australia had the world's fifth-highest per capita
income. Australia's military expenditure is the world's 13th-largest. With the second-highest
human development index globally, Australia ranks highly in many international comparisons of
national performance, such as quality of life, health, education, economic freedom, and the
protection of civil liberties and political rights. Australia is a member of the United Nations,
G20, Commonwealth of Nations, ANZUS, Organization for Economic Co-operation and
Development (OECD), World Trade Organization, Asia-Pacific Economic Cooperation,
and the Pacific Islands Forum. Australia is a country comprising the mainland of the
Australian continent, the island of Tasmania, and numerous smaller islands. . The population of
23.6 million is highly urbanized and heavily concentrated in the eastern states and on the coast
Australia has maintained a stable liberal democratic political system that functions as a federal
parliamentary democracy and constitutional monarchy comprising six states and several
territories The federal government is separated into three branches: Legislature, Executive and
Judiciary .

2. General economic background

Australia is a wealthy country which it generates its income from various sources
including mining-related exports, telecommunications, banking and manufacturing. It has market
economy, a relatively high GDP per capita, and a relatively low rate of poverty. In terms of
average wealth, Australia ranked second in the world after Switzerland in 2013. An emphasis on
exporting commodities rather than manufactured goods has underpinned a significant increase in
Australia's terms of trade since the start of the 21st century, due to rising commodity prices.
Australia has a balance of payments that is more than 7% of GDP negative, and has had
persistently large current account deficits for more than 50 years. Australia has grown at an
average annual rate of 3.6% for over 15 years,
However, the economies of six of Australia's major trading partners have been in
recession, which in turn has affected Australia, significantly hampering its economic growth in
recent years. Over the past decade, inflation has typically been 23% and the base interest
rate 56%. The service sector of the economy, including tourism, education, and financial
services, accounts for about 70% of GDP. Rich in natural resources, Australia is a major
exporter of agricultural products, particularly wheat and wool, minerals such as iron-ore
and gold, and energy in the forms of liquified natural gas and coal. Although agriculture and
natural resources account for only 3% and 5% of GDP respectively, they contribute substantially
to export performance. Australia's largest export markets are Japan, China, the US, South Korea,
and New Zealand. Australia is the world's fourth largest exporter of wine, and the wine industry
contributes $5.5 billion per year to the nation's economy.

Australia continues to be a top global destination for both inward and outward foreign direct
investment (FDI), due to the countrys robust economy, strategic location, strong global
trade and investment ties and proven track record of innovation.

3. Foreign trade indicators

Despite Australia's geographic isolation from the rest of the world, trade has always
represented a high proportion of Australias economic activity, because there have always been
overseas markets for primary commodities. The factors that best explain Australias relatively
low openness are its remoteness from large economies and its large land mass(able to produce
many goods internally and does not need to trade for them externally). The trade openness of the
country is constantly growing, which a trend is started since the late 80 due to the lowering of
barriers to the import of goods and services and capital flows.
With its relatively low share in the world export of around 1% for the last decade,
Australia is situated in the top 30 countries by export. Despite the reorientation of the exports
toward the rapidly expanding economies of developing Asia, export volumes have grown only
modestly this decade, in comparison with the country's largest economic partner- China.
Overall through the decade Australia has endured substantial growth of the export per
capita with more than two times. Apparently this is caused by the growth of export over the
years, but it should be taken into consideration the fast growth of the population from 20
million in 2004 to 23,5 millions at the end of the period.
Australia Trade balance has been in deficit for more than thirty years, starting from the
early 80's. For the last decade, the balance was negative, except the surpluses in 2010 and 2011
due to the high prices of commodities. However in 2012, the trade balance is back in deficit due
to sharp increase in value of exports and rising capital imports hand. Trade deficit is not
necessarily a bad thing. It raises the standard of living of a country's residents But on the other
hand, over time a trade deficit can cause outsourcing of jobs. That's because, as a country
imports certain goods rather than buying domestically, the local companies start to go out of
business
Structure of exports by 1-digit SITC The raw materials have the largest share in the
period 2004-2013, with an increase of 62% . The food and beverages in the beginning of the
period are 21% and they have decreased almost in double in the end of the period. There is also a
decrease in the share of the manufactured goods from 38% to 23%. The decrease in
manufactured goods and food and beverages are in favour of the raw materials. Raw materials
are the product group with the least added value; therefore for a country's economy is better that

this group is wit the lowest share. In 2013 the Australian share of this group is 2/3 of the total
export, which means that it is not much diversified and it's dependent of other economies.
In terms of largest export categories in Australia are distinguished two periods. The first is
between 2004-2009 when in the first place is the Coal [281], in second is Iron ore [321] and in
third is the Gold [971] . The second period is between 2010 and 2013, where Coal and Iron ore
are shifting places in the share of the largest categories. The share of these categories in the total
export share of the country have doubled through the period, from 22% to 48% . This share of
48% of those three commodities is bad for the country, because it's export is not diversified, and
if some global problems occur with these commodities, Australia could take severe losses.
The RCA for Australia shows that the country have comparative advantage in Ore, Woll,
Aluminium and Coal for 2004 and 2007, in Electric current, Wool, Aluminium, Iron and Coal in
2010 and 2013. In terms of relative trade balance, Australia have comparative advantage in both
foreign and domestic markets for Electric current in 2004 and 2007, and for Ores and Electric
current in 2010 and 2013.

5. Conclusion and recommendations

Today Australia is one of the fastest growing advanced economies in the world, economic
resilience and potential provide a safe, low-risk environment in which to do business. The
Australian economy has enjoyed a period of 23 years of uninterrupted economic growth an
average of 3.3 percent in real GDP growth annually, boosted by the strength of its services and
resources industries.
One of the key assets that Australia poses is the geographical location, close to the fastest
developing economy in the world- China, and the increasing connections with other fastgrowing economies in Asia. In 2009, China became Australia's largest export market,
surpassing Japan. Resources continue to underpin Australias exports to China. Australia
exported 266.2 million tons of iron ore to China in 2009, an increase of 45.2 per cent over the
same period. The vast scale of trade with China has seen massive investments by Chinese
companies in Australia. From 2007 to 2010, Chinese investment in Australia amounted to
nearly US$60 billion. Australias mineral exports also grew by 55 percent to US$139 billion in
2010 and are projected to reach US$180 billion in 2011, thanks to Chinas strong economic
performance. Chinese companies have also started to lease land from the Australian government
to mine resources on their own. Along with the relationship with China, Australia holds multiple
free trade agreements with numerous other countries such as the US, Singapore, Chile and
Thailand. Australia is also a member of numerous organizations such as APEC, the G20, WTO
and OECD.

Australias mining industry has been the catalyst for economic growth in the past decade.
Large quantities of minerals and resources can be found in Australia. Australia has the worlds
largest resources of recoverable brown coal, lead, rutile , zircon, nickel, tantalum, uranium and
zinc, and ranks second in the world for bauxite, copper, gold, limonite and silver. Iron ore is
another extremely valuable asset, with high demand from China.
The Australian labour force is one of the most educated, multicultural and multilingual in the
world. The country has the worlds highest secondary education enrolment rate, also almost 40
% of the workforce holding a tertiary qualification or advanced diploma. It is expected that
Australia will outperform many other developed countries for labour productivity growth in
terms of GDP per person employed.
Australia is a world-class innovation destination, with solid foundations of modern ICT
infrastructure, high levels of investment, generous R&D tax incentives for businesses and strong
intellectual property protection. Australia is a leader in the development of new technologies like
the bionic eye. Billions of people around the world rely on Australian discoveries, such as
Google Maps, high-speed WiFi, spray-on skin for burns victims, cervical cancer vaccine,
ultrasound, cochlear implants and civilian use of penicillin.
Australia has strong mining sector, which contribute to the increase in export and the share of
66% of the raw materials from the total export. Also a leverage is the undisputable comparative
advantage in Ores and Electrical current on both foreign and domestic markets. But
unfortunately commodity prices, particularly those important to Australia such as iron ore and
coal, have fallen over the past two years with shifts in both supply and demand. This has resulted
in weaker terms of trade, reducing Australian incomes and weighing on household and business
spending. However, the significant fall in oil prices, which are now at their lowest level in about
four years, will assist businesses by lower costs of production and improve real household
incomes. That's why Australia should have more diversity in its exports, in order to be more
independent from macro environmental factors, which will hinder its economic growth.