Australia's compelling case as an investment destination

Four reasons to invest in Australia

This year QIC has embarked on an ambitious program to collate and analyse data to shed light on the relative attractiveness of countries across the globe as investment destinations. The project covers 196 countries and data are collected across four key dimensions that impact underlying investment fundamentals: demographics, economic activity, debt and governance. We have filtered thousands of data points into indexes that measure the relative performance of countries across these four dimensions. We have projected the indexes forward using outlooks from the IMF, World Bank, OECD, various countries statistical agencies and QIC’s own proprietary forecasts including those using the NiGEM macroeconomic model. We have generated projections for the 50 largest economies, partly in recognition of the importance of scale as an ingredient into the attractiveness of a country as an investment destination and partly due to the difficulty of projecting many of the smaller countries’ fundamentals into the future.

Earlier in the year, we reported preliminary findings across a range of regions and countries (Demographics, potential growth and sovereign risk). In that report we wrote, “A consequence of a global slowdown in population growth is a slowing in the rate of growth in the global labour force, and hence, a slowdown in the potential growth rate of the global economy. Countries with higher rates of potential growth are more likely, inter alia, to generate higher returns on their assets. Hence, countries with higher rates of potential economic growth will become desired investment locations for international capital.” Since that report, we have updated the database, added an explicit accounting of the level and trajectory of debt and consolidated the four indexes of demographics, economic activity, debt and governance, into a single Investment Fundamentals index. What do the results tell us about Australia as a destination for investment?

The results are extremely favourable. Currently, Australia ranks 6^th of the 50 countries we examine as a top destination for international investment, behind the Norway (1^st), Ireland (2^nd), Saudi Arabia (3^rd), Sweden (4^th) and Denmark (5^th). This places us well ahead of many of our advanced economy peers who are our most likely competitors for foreign capital. We are ahead of New Zealand (8^th), Switzerland (11^th), Netherlands (12^th), Canada (13^th), Germany (15^th), the US (20^th) and the UK (21^st). Importantly, our ranking is trending higher. Projecting out to 2050, we rise to 4^th on the overall ranking, behind only the Scandinavians: Norway (who retain their number 1 ranking), Sweden (2^nd) and Denmark (3^rd), with the latter two replacing Saudi Arabia (5^th) and Ireland (6^th) in the top 3. Australia owes its overall performance to top 10 rankings in demographics (8^th in 2023 rising to 4^th in 2050), economic activity (9^th in 2023, rising to 6^th in 2050) and governance (10^th). Our weakest performance is in the debt-imbalance category, where we rank 15^th in 2023 rising by only one position, to 14^th, by 2050.

Below, we break down our performances across the four categories.

Demographics. Currently, Australia has the strongest population growth rate in the world at 2.4%, equalled only by Nigeria. This translates into an equal high growth rate of 2.9% growth in population of working age, again with Nigeria. However, Australia’s population and working age population growth rates are projected to drop sharply over coming decades to just 0.9% and 0.8%, respectively in 2050, as our population ages. Importantly, compared to most other countries, our population growth rates continue to outperform. By 2050, it is projected that global population growth will have fallen to 0.5% (from 0.9% currently), with only Nigeria (1.5%), Pakistan (1.2%) and Egypt (1.0%) having higher growth rates than Australia.

Economic activity. Our strong population growth rates translate into strong scores on economic activity, particularly for an advanced economy. Currently, our trend employment growth rate of 1.9% is more than twice that of the global average and US rates of 0.8%. This supports a strong trend growth rate in Australian GDP, which is currently estimated to be 2.3%, compared to US and Canada at 2.1%, and advanced economies in Asia and Europe of around 1.5%. Looking forward to 2050, Australia’s relatively strong population growth enables us to hang-on to our robust economic growth, with trend GDP growth falling to just 2.2%. In contrast, the North American trend GDP growth rate drop to 1.5%, while the advanced economies of Europe drop to 1.0% and the advanced Asian economies drop to an abysmal 0.5% trend growth rate.

Governance. Australia’s 9^th rank in governance owes to an 7^th ranking on “ease of doing business”, behind New Zealand, Singapore, Denmark, Hong Kong, Norway and Sweden, and our 8^th ranking on “corruption perception” behind, Denmark, New Zealand, Norway, Singapore, Sweden, Germany and Ireland.

Debt imbalance. Australia’s weakest rating is in its debt imbalance measures, where it currently ranks 15^th with a slightly negative debt imbalance index score. Australia is weighed down by its net foreign debt position, which sits at 32% of GDP. This offsets a favourable public sector debt position where gross government debt is just 55% of GDP, which is significantly lower than the global average of 85%. Australia’s ranking improves only marginally to 14^th by 2050. Clearly, Australia’s debt imbalance ranking is an area in which Australia has scope to improve.

Australia’s fundamentals compare favourably across the world’s 50 largest economies. Strong demographics, economic activity and governance make it a desirable destination for international investors, both now and into the future.