FYI | Feb 01 2010
By Andrew Nelson
On current run rates, Australia is poised to drop down two rankings over the next five years on the world economic leader-board. With fast-growing emerging nations continuing to industrialise at a furious pace, both Mexico and Korea are poised to push Australia down to 15 from its current spot at 13 based on current projections from the International Monetary Fund.
Looking out 10 years and Saudi Arabia and Indonesia could also be challenging for that top 15 spot, as emerging nations in Asia, Latin America and the Middle East continue to push past advanced nations in Europe, North America and -alas- Australia.
While Australia may be facing some challenges in maintaining its economic relevancy, on the global front things are looking increasingly brighter. All up, the International Monetary Fund expects the global economy will grow by 3.9% over 2010. This is a fairly healthy rate from a historical perspective, given over the past 30 years the global economy has grown on average by 3.3%.
The no longer “emerging” economies of China and India (they have now “emerged”) are expected to lead the charge, with other Asian nations becoming increasingly pivotal in driving the global economy over the year ahead. According to data from CommSec, China now accounts for just over 8% of the global economy, but in 2010 it should contribute around a fifth of this expected 3.9% growth rate for the global economy. Asian nations as a group, notes CommSec, will account for around half of the world’s economic growth in the coming year.
Yet while few will argue that China will continue to expand economically at a rate of noughts over coming years, CommSec chief economist Craig James thinks it would be imprudent to simply write off the importance of the US. In the coming year, James thinks that the US economy will account for around a sixth of global economic growth and while it will not be the prime driver of the global economy as in days gone by, James thinks it will still take another 10-15 years for China to pass the US and take the number one spot.
James is firmly of the opinion that emerging nations are now the engine room of the global economy, and the good news for Australia is that these fast growing nations will need Australia’s raw materials to drive their economies. This has James seeing plenty of upside and opportunity for Australia in maintaining its importance and its position on the leaderboard.
On current projections, the teens decade is shaping up to be the fastest decade of growth since the 1970s, when the global economy grew on average by 4.4% per year. James notes average world economic growth slipped to 3.1% in the 1980s and then to 2.9% in the 1990s. However, the naughties saw growth increase to 3.5% on average, with James seeing 4.0-4.5% over the teens decade as a real possibility.
One thing is for sure, thinks James, and that’s that Australia will have to maintain a “firm” level of population growth, which is not just important to address an ageing population, but will also be an important factor in helping the Australian economy maintain strong overall economic growth. Right now, it is Australia’s population growth that puts the country in a far stronger position than European economies or Japan, thinks James, who notes the Japanese population is declining, while western European economies are recording negligible population growth.
So while Australia’s position amongst the top grouping of global economies is certainly looking threatened over the next 5-10 years, James is firmly of the belief that the ongoing shift in economic supremacy from Europe and North America to Asia, combined with the accelerating pace of global economy growth, is very much a “win-win situation for Australia”.
