28 May 2018

State of Play: Australian economic outlook - May 2018

Bruce Cooper provides an update on the economic climate for the first half of 2018 and the key industries providing opportunities for foreign investors.

To learn more about the key market trends and latest legal developments in Australia, visit our Australian Market: the state of play page.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.


Australia's economic outlook for 2018 remains strong.  Our traditional ties to Asia coupled with our relatively low sovereign debt around 20% of GDP means that we are projecting a 5 year economic growth cycle which is better that most of our advanced economy peers.

Confidence and conditions generally across the Australian economy are strong, consumer sentiment is high and business confidence indices are the highest they've been for quite some time.  That confidence plays out in traditional sectors, the mining sector, finance and services, logistics, construction and the property sector. 

The only dark cloud on the horizon, and frankly it's not a dark cloud, it's a grey tinged cloud, is the retail sector and frankly that's no different from the challenges in retail is facing globally.

As far as inbound capital flows into Australia the last measurable quarter, which was the 2017 quarter, shows that inbound capital is strong at around about $79 billion worth investment.  And that's more than 10% of the next best favourable rolling one year period back in 2012, which was widely considered to be the peak of the mining investment boom.  The stock of foreign capital in Australia stands at around about $900 billion, higher than 2012.  Again that being the peak of the mining investment boom.

US and European funds continue to be a mainstay of inbound investment in Australia, given the challenges that they face in investing in riskier Asian jurisdictions.  In addition, relaxation in media laws late last year mean there may be media opportunities as well as the more traditional mining and allied infrastructure opportunities.

Australia's start up ecosystem is particularly robust and is growing with strong capabilities in the fintech, the agricultural technology, the edtech and the medtech sectors.  We continue to see a number of tech IPOs with foreign tech companies favouring Australia for an ability to list earlier on a globally recognised exchange with access to an investor base that is active in smaller mid-cap companies.

The governing Liberal Party continues to advocate a cut in the Australian company tax rate of 30%.  There will be an election in Australia sometime between August 2018 and May 2019.  An Australian election is always at the discretion of the Prime Minister.  So there remains some uncertainty as to how the political landscape over the coming year will play out into the economic landscape.

The Australian dollar continues to trade at around 76c to the US dollar and there's a sense that that's about where the Australian dollar belongs. 

So the bottom line, a strong economy, confident economy, business confidence high, increasing foreign investment and a robust and welcoming climate for foreign investors entering Australia.