In a Period of Turbulence, Stability Pays Dividends

Oct 01, 2019

There is no way to sugar coat the outlook for the global economy in the short and medium terms. Many economic factors are driving uncertainty around the world and in our region.  However, Australia and Japan can find benefits in such a challenging environment due to the strength of their trusted partnership and demonstrated commitment.


The list of challenges is formidable; Chinese economic growth is slowing fast, much faster than the official figures may indicate. The build up of pressure from demographic decline and the historic levels of debt to GDP is becoming a major burden. In addition, the push back on Chinese trade practices from the US, a long time in the making, with reciprocal tariffs and restrictions on investment in certain sectors, does not look like diminishing any time soon. There is strong support for the push back across political divides and in the private sector.


Japan and South Korea have their own bilateral trade dispute, which is important for our region and for Australia as they are two of our most important trading partners. In addition, Japan and the US have agreed to reductions in trade barriers in the agricultural sector, including beef. This will erode some of the advantage that Australia enjoyed since 2015 due to the EPA with Japan. Those five years gave Australian producers valuable time to establish relationships and market share, so the advantage is not wholly lost.


Despite these challenges, the stability of the Australia-Japan relationship, which has been moved to a higher level due to the surge of Japanese FDI in the past five years into a diverse range of sectors, provides a strong platform and insurance policy in turbulent times. Most of the opportunities that are appearing in Australia and in our region, especially ASEAN.


In Australia there is tremendous room for Australia-Japan partnerships in the massive pipeline of infrastructure projects, supported by Federal State Governments, which reach decades into the future. In addition, there are major changes coming to the mix of energy sources and production that provide further opportunities. One notable example is hydrogen.


In Japan, the surge in tourism and sport related business opportunities over the next couple of years should be attracting Australian companies to participate. In addition, Japan’s intellectual property protections offer safer options in collaboration in the new frontiers of R&D.


Australia and Japan also play key leadership roles in the TPP11, which is a high standard trade deal and a valuable template for countries that are looking to participate. Some of those potential new entrants are members of ASEAN, such as Indonesia, Thailand and The Philippines.


Treated as a bloc, ASEAN is Australia’s second largest trading partner and the share is growing. This is a critical statistic. Firstly, because Vietnam and Malaysia are already members of TPP11 so the potential addition of the other three will greatly raise the benefits to the while region. Secondly, these economies have the greatest future potential of economic growth due to favourable demographic trends. And finally, they are well placed to take advantage of the movement of investment away from China, which is already underway. Both and Australia enjoy considerable advantages with their vast economic ties to the region and the benefit of their close economic ties.


Author: Manuel Panagiotopoulos

Managing Director, Australian and Japanese Economic Intelligence