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COUNTRY ANALYSIS REPORT

AustraliaIn-depth PESTLE InsightsPublication Date: June 2009

OVERVIEW CatalystThis profile analyzes the political, economic, social, technological, legal and environmental structures in Australia. Each of the PESTLE factors is explored on four parameters: current strengths, current challenges, future prospects and future risks.

SummaryKey findingsEconomic conditions bring fresh challenges, but international relations continue to improve The global economic slowdown has not left the Australian economy unscathed. The industrial slowdown, coupled with deteriorating terms of trade, has forced the government to introduce a stimulus package designed to encourage economic revival. While the long-term impact of such measures is yet to be assessed, the government is increasingly being criticized by the opposition for economic mismanagement. With fears of a recession looming large, the state will be forced to ease liquidity in the system and increase expenditure. The present government may fail to get enough public support in the federal elections of 2010 if the economy does not show signs of revival before then. However, the Australian government has maintained continuity in its foreign policy towards the US, China, Japan and Indonesia, and has entered into bilateral trade agreements to promote trade liberalization. Prime Minister Rudd is supportive of US President Obamas international policies. Under Rudds leadership, Australia withdrew troops from Iraq, although it has pledged to maintain its forces in Afghanistan. Moreover, the country has been working on improving its ties with countries like Japan, China, Indonesia and Vietnam in the Asian region. The positive relations between Australia and other nations bring the country many trading benefits. The economy has entered recession, but the governments stimulus package promises early revival Since 2008, there has been a slump in the economic growth of Australia similar to that seen in most other advanced nations, albeit of a lower magnitude. The GDP attained a growth rate of 1.5% during 2008, compared to 3.9% growth

Australia: Country Analysis Report In-depth PESTLE Insights Datamonitor. This brief is a licensed product and is not to be photocopied

Published 06/2009 Page 1

Overview

in 2007. It is expected to further decline in 2009 to a negative growth rate of 0.5%. According to the RBAs Statement on Monetary Policy in May 2009, GDP declined by 0.5% during the quarter ending in December the previous year. This was the first time that the countrys economy had shrunk since 2000, when the quarterly fall was more than 0.3%. According to the report, the slowdown in the domestic economy has been evident across private-sector spending and in the labor market. As a result of the weaker economic environment, labor market conditions have deteriorated, with the unemployment rate increasing from a low of around 4% in early 2008 to more than 5% in April 2009. To help the country to endure the present crisis, the government has announced large-scale spending programs on health, education and climate change. In February 2009, the government announced a $26 billion stimulus package aimed at nation-building and supporting up to 90,000 jobs. The initiative includes increased spending on education and infrastructure, tax breaks for small businesses and cash handouts to eligible workers, farmers and students. Prior to this, in December 2008, the government had pumped an additional A$10.4 billion (around $8 billion) into the economy to boost consumer spending. The stimulus package will encourage an early recovery to the current recession in Australia. Increasing integration of the healthcare sector; however, aging population will remain a challenge There has been constant improvement in the healthcare sector, with major companies taking the lead. Sterling Commerce (a subsidiary of AT&T Inc.) and 4Solutions Enterprises (a company specializing in delivering business process management and professional services in Australia) have improved the IT integration between wholesalers and distributors, servicing about 5,500 retail pharmacies across the country. This has allowed the health supply network to meet its deadlines and reduce warehouse stock, which is critical to achieving economies of scale in a competitive market. The population of Australia is ageing, and maintaining high per capita income growth will become harder to achieve. The proportion of people aged below 55, where labor force participation is normally the highest, is expected to decline significantly during the next 20 years. Australian government projections foretell a doubling of the number of people aged over 65 to around 25% of the total population over the next 40 years, while growth in the amount of people at traditional workforce age is expected to slow to almost nil. As a result, the aggregate labor force participation rate is predicted to be 9% lower than the current level by the early 2040s. This would reduce the growth in real GDP per capita to about 1.5% per year from the 2020s onwards. The countrys budgetary support for the ICT sector will help the market to expand, but the declining number of patents indicates a requirement for R&D growth The telecommunications sector has been one of the fastest-growing industries in Australia, demonstrating average annual growth of around 6.5% during 200007. As the government has continued its support for important communications and IT programs, the segment is expected to grow at an even swifter rate in the coming years. However, due to many factors, such as low productivity, high wage costs and limited participation in R&D, the country fares poorly in terms of research patents, obtaining fewer than other developed countries The slow rate of growth in the number of patents reflects the fact that Australia must do more to encourage R&D growth.

Australia: Country Analysis Report In-depth PESTLE Insights Datamonitor. This brief is a licensed product and is not to be photocopied

Published 06/2009 Page 2

Overview

Liberal business regulations make the country an attractive investment destination; however, tax reforms have not benefited everyone The Organisation for Economic Co-operation and Development (OECD) has rated Australia as the most open economy among its member states. The country follows market-friendly policies and has a very liberal legal regime. The OECD considers Australia to have the least overall regulation out of all its members. The country was also judged to have one of the lowest levels of bureaucracy and industry-specific regulation. However, Australias tax reforms have not been able to benefit everyone, and are held to have helped the rich rather than the poor. This issue is yet to be addressed by the present government, but needs to be rectified. The government has committed itself to the Kyoto Protocol, but is finding pollution levels difficult to manage One of the first policy decisions taken by Prime Minister Rudd after assuming office was to sign the Kyoto Protocol. By ratifying the treaty, Australia committed itself to meeting its Kyoto Protocol target, and has set a goal of reducing greenhouse gas emissions by 60% from 2000 levels by 2050 and by 5% before the end of 2020. This is considered by some to be too little, given the high level of pollution in the country. However, the Australian government is prepared to increase this target if other countries such as China and India make similar commitments. Rising pollution levels are causing environmental disruption in Australia. The proportion of the country's land that is hospitable to useful vegetation has fallen to 8%, and wetlands in the Murray-Darling basin have shrunk by 90%. The coast and ocean life are under increasing pressure in Australia, and it has also been discovered by the forest department that the water yields from forests for Melbournes supply catchments have come down by 50%. Carbon dioxide emissions have been rising at an increased rate, growing from 381 million metric tons in 2004 to more than 417 million metric tons in 2006. Although there are a number of policies in place, the government is finding it difficult to control the rising pollution levels. This is largely due to increased dependency on coal for electricity.

PESTLE highlightsPolitical landscape The Labor party, under Kevin Rudd, won the 2007 elections, with 32 seats in the Senate and 83 seats in the House of Representatives. In the same year, Prime Minister Kevin Rudd ratified the Kyoto Protocol on climate change, reversing the previous government's policy. The present government plans to invest more than $1 billion in e-learning and e-health to boost the digital infrastructure in both sectors. Economic landscape The nation's current account deficit is expected to widen to around 9% of GDP in 200910 due to the global demand for its export commodities deteriorating without an equivalent fall in imports, as Australian consumption expenditure will remain healthy compared to that of other advanced economies.

Australia: Country Analysis Report In-depth PESTLE Insights Datamonitor. This brief is a licensed product and is not to be photocopied

Published 06/2009 Page 3

Overview

Having previously enjoyed a comfortable fiscal position, the Australian government is set to record a large budgetary deficit of 4.9% in 200910. The financial conditions will change, with large-scale government expenditure proposed to facilitate economic revival.

Social landscape Australia's population grew from about 17 million in 1990 to almost 21 million in 2008. The national population growth rate since 2000 has been around 1%, reducing only marginally to 0.8% in 2006. Since 1990, healthcare spending has grown at an annualized average rate of 25%. The rate of growth for 20