With a relatively small population by world standards, Australia’s economy is more than holding its own against the big players. How did we get to this point and what does it mean?
A country’s economy can be measured by its gross domestic product (GDP). That is, the market value of all officially recognised final goods and services produced within a specified time frame.
Given this, the fact that Australia’s economy now ranks as the 12th largest in the world is something of an achievement. Narrow the field to the Asia-Pacific region and we rank an impressive 4th.
The world’s largest economies are China, Japan and the United States, which also happen to be our three most important trading partners. This demonstrates the obvious respect in which we are held, and is supported by the World Economic Forum which ranked Australia’s financial development 5th out of the 57 world market leaders in 2012.
Australia’s economy sprung from our rich natural resource deposits. From the earliest days of industrial revolution, Australia has exported coal and iron ore to the rest of the world. These days we are one of the largest international suppliers – our mineral exports account for more than 9% of our total economy.
Other industries contributing to our strong global position are manufacturing – 9% and construction – 8%.
Interestingly, Australia’s financial services industry adds 11% to our economy. This is largely attributable to our compulsory superannuation regime. Australia’s pooled funds under management are the largest in the Asia-Pacific region and 4th largest in the world!
Australia represents an attractive location for many major international investment organisations because of our healthy economic environment. In addition, our banking and financial industry regulatory and compliance structures are the envy of many countries.
In Australia, international trading is measured by an index known as the All Ordinaries index which comprises around 500 of Australia’s largest company by market capitalisation. Australian trade movements can be compared with other world indices. For example, we can evaluate our trade movements against the United States by comparison with its index – the Dow Jones.
With Australia’s market valued in trillions of dollars, it’s neither alarming nor unusual for the All Ordinaries to gain or lose billions of dollars in a single day’s trade. Remember this the next time you see headlines screaming “billion dollar losses”.
Given Australia’s economic strength, some people wonder why financial advisers often recommend international investments. This is because world economies constantly move up or down against each other and these movements can potentially yield significant gains when balance and timing fall into place.
Through political and environmental stability, the Australian economy has earned its reputation of strength and security. Your licensed financial adviser can explain further in the context of your own investments.