• Australia’s GDP and productivity growth have been sluggish. The government is moving to streamline foreign investment processes.
  • Inflation has moderated but has not fallen as much as expected, lowering expectations of interest rate cuts this year.
  • The government has published a 10-year defense-spending plan in response to the country’s challenging strategic environment.
  • Canberra has outlined its response to the U.S. Inflation Reduction Act: A Future Made in an attempt to attract investment in areas such as critical minerals and green energy.
  • Events in the Middle East have created political divisions in Australia and strained social cohesion. The role of social media is in the spotlight.
  • An election is due by May 2025. There is speculation that global uncertainty and economic headwinds may encourage Prime Minister Anthony Albanese to go to the polls in 2024.
  •  Opinion polls suggest the government’s support has fallen, with the potential for a minority government. The cost of living, climate change and immigrations will be key issues.
  • Changes in resources prices and the Chinese economy will materially impact Australia’s budgetary and economic conditions.
  • Although the government has ambitious renewable energy targets, coal and gas will remain critical to Australia’s energy security over the next decade.
  • The government will continue its mission to stabilize the relationship with China — Australia’s top trading partner — while deepening security ties with the United States.
  • Albanese is expected to attend the July 9-11 North Atlantic Treaty Organization Summit in Washington.
  • The government is reforming laws on competition, privacy, cybersecurity and online safety to bring them up to speed with the digital age.

Australia Market Overview and Forecast

Political Climate

Government Faces Tight Reelection Race

Opinion polls have tightened to around 50-50 after preferences — Labor won with 52-48 in the two-party vote in the 2022 election — and opposition leader Peter Dutton has closed the gap with Albanese as the preferred prime minister. This has invited speculation about a minority government during the next term of government; Labor currently holds a slight majority of 78 in the 151-seat House of Representatives. The Liberal-Nationals opposition holds 55 seats, and independents and minor parties have 18.

Energy and climate policy will feature prominently in political debate for the rest of 2024. Increasing public skepticism about the economics and reliability of renewables has emboldened the conservative opposition to criticize the government’s emissions targets, while Labor has accused the opposition of threatening to renege on Australia’s global commitments. High-profile controversies related to immigration policy have damaged the government’s standing, increasing the likelihood of a ministerial reshuffle this year.

The government’s Future Made in Australia initiative will be of key political importance in the lead-up to the next election. Voters with the cost of living front of mind are looking for tangible benefits from the much-heralded transition to a net-zero economy, and Albanese has emphasized that a “future made in Australia” is a key pillar on which Labor will seek reelection.

Dutton, who is advocating for the consideration of nuclear power, said manufacturing businesses in Australia “are going broke under the Labor government” because of their energy and industrial relations policies. He said, “you can’t have Australian Made if Australian businesses are being driven offshore.” Notwithstanding Albanese’s commitment to back Australia’s comparative advantages, economic purists are skeptical that the initiative is anything but a risky attempt at picking winners.

Geopolitically, the government continues to stabilize ties with China, deepen its security alliance with the United States and strengthen Australia’s economic and strategic partnerships with Asian nations.

Macroeconomic Climate

Attention Turning From Inflation to Economic Growth

Treasurer Jim Chalmers believes the “balance of risks is shifting” in the Australian economy from inflation to growth as the Middle East conflict and persistent inflation threaten to lower economic growth among key trading partners. While inflation has moderated, economic growth has dipped, and unemployment is forecast to rise.

The opposition maintains that Australia would be in a recession if not for the demand created by migration and that the country is in a “personal” or “per-capita” recession. The opposition believes Labor’s migration policies are making rents and housing unaffordable, energy market interventions are wasting billions in taxpayers’ money and pro-union workplace laws have made it harder for young Australians to get jobs.

Albanese said he intends his government to run full term and that another budget will be delivered in March 2025.

Investment Environment

Government Reforms To Improve Business Environment

Although household consumption has been relatively weak, it had been partly offset by the considerable strength of business investment and above-average growth in public demand. Labor market tightness has abated somewhat. Data suggests wage growth has peaked and productivity growth has begun to recover.

Nevertheless, the corporate sector is calling for tax, workplace and education and training reforms. While acknowledging that foreign investment rules needed to change in response to national security concerns, the corporate sector believes the rules are time-consuming, costly and delaying the routine business of Australian companies. Pro-union workplace relations reforms and the perceived lack of an economic reform agenda have created tensions between business and the Labor government.

The government will abolish 500 “nuisance tariffs” on a vast array of imports starting July 1, clarify and improve the regulatory approvals process, provide some direction and certainty in the financial sector and work toward a better way of assessing mergers and acquisitions. The government agrees there is a need to update Australia’s offshore regulatory gas arrangements and broader environmental approval processes.

The government’s proposed Made in Australia Act seeks to coordinate a whole-of-government package of new and existing initiatives to drive investment in areas such as rare earths mining and processing and hydrogen and solar energy production. The government’s preference is for a private sector-led surge of investment, facilitated by government investment when required.

Over the next decade, the government will invest in military strike capabilities to address Australia’s challenging strategic circumstances. Canberra envisages a navy with an upgraded lethality surface fleet and conventionally armed, nuclear-powered submarines; an army with a long-range land and maritime strike capability; an air force that can deliver better maritime, land and air strike capabilities; and enhanced cyber and electronic warfare.

Big Tech is facing intense scrutiny regarding online safety, competition, consumer protection, privacy, media bargaining, misinformation and national security. Attention to the industry has multiplied in recent months alongside the rise of artificial intelligence.

We will continue to keep you updated on developments in Australia as they occur. If you have any questions or comments, please contact BGA Australia Managing Director Michael “Mick” McNeill at mmcneill@bowergroupasia.com.

Best regards,

BGA Australia Team