This week’s ASEAN leaders’ conference in Melbourne comes as a reminder of the strength of growth in the Asian region – and the opportunities for Australian business.
While the region is one of the fastest-growing in the world, there was a clear message this week that Australia could do a lot more to engage in trade and investment with the area – and broader Asia.
The summit came at a time when Wednesday’s GDP figures have provided a reminder that Australia cannot be complacent that it has survived the big rise in interest rates without a recession.
The figures painted a picture of a weakening economy.
As Moody’s economist Harry Murphy Cruise described it, the economy “limped to the end of 2023, with growth slowing in each successive quarter of the year”.
The figures revealed that the economy managed to expand by only 0.2 per cent in the December quarter, after a 0.3 per cent rise in the September quarter.
On a per capita basis, the economy actually shrank by 0.3 per cent, after a 0.5 per cent fall in the September quarter, and a 0.2 per cent fall in the June quarter.
For years, the strength of exports – led by continued high prices for iron ore, coal, lithium, LNG and gold – have helped to underwrite the economy, and contributed to government coffers in terms of revenues.
The December quarter figures show that net trade contributed a handy 0.6 percentage points to the growth figure, but this was because a modest fall in export volumes of 0.3 per cent was offset by a much bigger fall of 3.4 per cent in import volumes.
But the advantage of having a high-profile meeting of Asian leaders in Australia is the reminder of the opportunities in the region.
After China, ASEAN is already Australia’s second-largest trading partner. As Anthony Albanese pointed out in his speech, Australia’s two-way trade with ASEAN members passed $178bn – greater than Australia’s trade with Japan or the US – in 2022. Two-way investment with the region was worth $307bn.
Perceptions in recent times of the region and its potential have been coloured by the lockdowns of the Covid years as well as outdated ideas of the sophistication of its economies.
But the region has reopened, recovered and continued to expand, with its citizens increasingly wealthy and digitally enabled, with a potential demand for a wider range of services that could be provided by Australian companies, including healthcare and education.
A key factor boosting the region has been the large-scale diversification of manufacturing away from China.
Both Chinese and Western countries have moved production outside of China in recent years as labour and other costs rise.
This structural force has been accelerated by the risks of potential US sanctions and tensions with China – and some lessons from that country’s prolonged Covid shutdowns – which have created a need for a more diversified supply chain.
Many companies have now realised the importance of not having all their sourcing eggs in the China basket, adopting a “China plus one” strategy that is flowing through to investment in the region.
ASEAN countries such as Vietnam, Thailand, The Philippines, Indonesia and Malaysia have all benefited from this.
There has also been a shift in capital and business services from Hong Kong as an entry and exit point for China, with Singapore’s role as an Asian financial centre rising.
Long known as the financial centre of Southeast Asia, the Lion City has seen a big shift in financial executives and family offices from Hong Kong in recent years.
The relative youth of the region is also another economic driver at a time when the populations of China, South Korea and Japan are ageing.
The country to watch is Indonesia, which has an economy growing at 6 per cent, and with its latest election showing its political stability. As visiting executives from HSBC pointed out in an interview with The Australian this week, years of investment in infrastructure are finally paying off for the country.
HSBC is predicting that the 10 countries in ASEAN will have the third-largest GDP in the world by 2027, with its economists predicting that 70 per cent of its population will be middle class by 2030.
“It means they will have more spending power, they will buy more healthcare products, and more consumer goods, and invest more in their education than they ever did before,” HSBC’s head of commercial banking for South and Southeast Asia, Amanda Murphy, told The Australian
“They will have a higher level of disposable income.
“The growth in the purchasing power of the middle class is key for companies that are making those products and services.”
In an interview with The Australian, the chief executive of logistics company Team Global Express, Christine Holgate, a former CEO of Blackmores and Australia Post with a long interest in the ASEAN region, who spoke at the summit this week, said Australians needed to be more aware of the opportunities in the region.
She said there was a “massive opportunity” in Indonesia in particular, where average income levels were rising.
“Ten years ago, we all thought that Indonesia was going to become the fifth-largest economy in the world by 2030,” Holgate said.
“Covid put it back a bit, but it’s still headed in that direction. It just might take a little bit longer.”
Holgate said Australian companies were investing more in New Zealand than in Southeast Asia, despite its much larger population and economy.
She said companies from Europe and the US were all investing in Indonesia, taking advantage of opportunities that were on Australia’s doorstep.
“Apart from our mining resources, Australia is an incredible food bowl,” she said. “There is also a need for health and financial services and other things that Australia is well known for.”
The recent report by former Macquarie Group chief executive Nicholas Moore has been groundbreaking in setting out steps to boost ties with the region.
Holgate argues that more can be done to leverage the potential of 125,000 ASEAN students in Australia as well as more than 500,000 alumni of Australian universities now in the region.
Despite all the political issues with China, Australia has done well out of its trade with the world’s second-largest economy, but it needs to work harder to diversify and connect with the increasing opportunities in the region.
As the GDP figures show, economic growth cannot be taken for granted.
Trade and relations with Asia will be the key to Australia’s economic success in the future.
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