Australian one hundred dollar and fifty dollar banknotes are arranged for a photograph in Sydney, Australia. (Photographer: Brendon Thorne/Bloomberg)

Australia’s Long Economic Run Is Flagging

(Bloomberg Opinion) -- The golden age of Australian economic growth may have passed.

Continuing a run of over 25 years, the expansion most likely clocked another quarter of gains in gross domestic product in the three months to June 30. But that run looks tired, and the weight of many challenges has accumulated.

The most significant are two related shifts. The first is changing relations between Australia’s biggest trading partner, China, and the guarantor of Australian security, the U.S. The second is the nature of Australia’s relationship with each of them. China’s growth is slowing, and its economy is driven less by investment and exports and more by domestic consumption. That means a waning appetite for the raw materials Australia sells it even as China’s economy grows bigger overall. And at some point, China may well have its own recession. Nothing lasts forever.

As for the U.S., there is a real sense that its relative economic and political clout is fading, certainly in Asia. This fear isn’t new in Canberra, but it was seen as a longer-term issue, not something that had to be confronted immediately. The election of Donald Trump and the advent of trade skirmishes with China — not to mention the prospect of an all-out trade war — changes the calculus. America as the disrupter in Asia, rather than the stabilizer, is a big shift. From Down Under, America looks at best indifferent to the world of rules it created. That’s terrifying.

Perhaps the real salad days for Australia were from, say, 1978 (when Deng Xiaoping began China’s economic opening) through around 2008 (the global financial crisis). Sure, there were recessions during the first half of that period, but in retrospect they set Australia up for the growth surge that followed. China began its economic rise and the U.S. provided the broad economic and military rules and framework that made the region thrive. There are now questions over both treasure and security, wrestled with last week at the Australian National University’s Crawford Leadership Forum, in which I participated. Neither Trump nor, for that matter, Xi Jinping solely created this existential moment. They did speed and amplify its arrival.

Not everything is about China and America, though. Scratch the surface and problems familiar to many nations can be seen: an aging population, anemic wage growth, swelling cities straining infrastructure, dramatic changes in rainfall and an erosion of support for immigration. Population growth made a big contribution to economic success.

Australian governments invested a lot the past few decades in forging an economic and political future in Asia. (There was always the alliance with the U.S. to back things up.) What makes the current moment so sobering is that while the bulk of Australia's exports go to Asia, Australian businesses are neglecting investment opportunities there.

The largest destinations for direct investment in 2015 were the U.S., the U.K. and New Zealand. Singapore was fourth, with a bare 3.9 percent share, and China was fifth, along with Papua New Guinea and Germany, according to a study from PriceWaterhouseCoopers, the Institute for Managers and Leaders, and Asialink Business. That’s unacceptable, especially as the post-1945 order fades. Asia and the coming order, whatever that ultimately looks like, aren’t about to wait for Australia.

The shelter and comfort of powerful-yet-distant friends, first the U.K. and then the U.S., has never looked so dated.

©2018 Bloomberg L.P.

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