Forget hard hats, red earth and fly-in, fly-out drudgery. Tourism is once again helping to drive Australia’s growth, and could even explain why the end of the resources boom hasn’t left more people on the dole queue.
According to research from Barclays, the value of non-mining, non-farm exports has climbed 7 per cent in the past 12 months, and services such as tourism are leading the way.
The reason is the sharp depreciation of the Australian dollar in that time, and a related drop in the price of key commodities such as iron ore and coal.
So while miners are shipping more volume than ever to make up the price shortfall, Australia is looking increasingly cheap to holidaymakers, students and business groups from China, the United States and Europe. Their currencies are, respectively, stable, relatively strong and resilient against the odds.
The latest trade data from the Australian Bureau of Statistics shows the value of inbound tourism, including that connected to education and business, for May this year was 11 per cent higher than a year ago. Total receipts for the year to the end of May are about $17 billion, just more than coal with about $16.5 billion.
If this trend continues, says a range of analysts, tourism will have replaced coal as Australia’s No. 2 export earner, behind iron ore.
“Exports of services account for the bulk of non-farm, non-mining exports,” says Barclays chief economist Kieran Davies, “and the recent strength in services has been driven by tourism.”
“Nominal [before inflation] exports of tourism are up 11 per cent over the past year, which is the fastest growth since 2007 and follows a long period of stagnation.”
He argues that if the trend continues, tourism could even replace iron ore as the biggest contributor to export revenue.
Visitor spending on flights, accommodation, restaurants, wine-country tours and the like now account for 2.5 per cent of gross domestic product, compared with 2.3 per cent for coal, which has dropped from a peak of 5.7 per cent. Iron ore’s share of output, meanwhile, has fallen from 5.1 per cent to 2.7 per cent.
“Although exports of bulk commodities are still making the largest contribution to real gross domestic product growth, the steep decline in the price of iron ore and coal has seen these exports decline sharply as a share of nominal GDP,” Mr Davies said.
“This means tourism has overtaken coal to become Australia’s second-largest export.
“Tourism may also soon overtake iron ore, Australia’s largest export, given we expect the price of iron ore to remain under pressure,” he said.
The Barclays note is the latest piece of research suggesting Australia’s long-awaited transition away from mining-related infrastructure development is well under way.
Reserve Bank of Australia governor Glenn Stevens said as much in a keynote speech in Sydney last week as he welcomed the Australian dollar’s “adjustment” in line with the country’s declining terms of trade, which is the value of exports versus imports.
National Australia Bank chief economist for markets Ivan Colhoun agrees, proposing in a note that Australia’s jobs market may owe its surprising resilience to “an improvement in the non-mining economy”.
Barring several months of wild gyrations, Australia’s official unemployment rate has been steady at 6 per cent for a year, despite earlier RBA forecasts of a spike as high as 6.5 per cent.
“The relative intensity of employment in each sector means the improvement in non-mining growth is more important for the labour market,” Mr Colhoun said.
However, tourism’s No. 2 in the export league might be short-lived, according to a recent note from Australia and New Zealand Banking Group.
It argues current investment in liquefied natural gas (LNG) could make the energy source Australia’s biggest export by value once prices pick up from current lows.
“The long-term global outlook for LNG is strong,” wrote senior commodity strategist Daniel Hynes.
“We expect international prices to increase over the next five years due largely to the rise of Asia, where clean-energy demand and overall increases in energy consumption are outstripping supply,” Mr Hynes said.
“As a result, Australia’s LNG exports could more than triple over the next five years – overtaking iron ore as the key export driver – substantially lifting Australia’s GDP growth and playing a decisive role in restoring Australia’s trade balance to positive territory.”