Australia’s Uncertain Economic Conditions: Concern is Valid, But Not All Hope is Lost for Industry

The Exciting Opportunity in Renewable/Green Exports

21 June 2024

Overview
With rising concerns regarding a slowdown in economic growth and a lack of economic complexity, now is the time for Australian industry to grasp with both hands the opportunity for a brighter tomorrow.

Bleak Economic Conditions
As the RBA’s continued commitment to combat rising inflation remains steadfast, the Australian economy is suffering the consequences of a crucial economic trade-off: reducing inflationary pressures and depressing demand can come with an increase in the cost of living as well as economy-wide growth stagnation. Based on Australia’s ‘National Accounts’ data for the March 2024 quarter, the cash rate target sits at a 16-year high of 4.35%, while real GDP per capita (economic output per person, adjusted for inflation) has fallen for five consecutive quarters, with an annual decrease relative to March 2023 quarter of -1.3% (Australian Bureau of Statistics, 2024) and (Reserve Bank of Australia, 2024). In other words, the Australian economy is in the midst of a per capita recession. Further, Australia has a number of concerning economic vulnerabilities, particularly with regards to our trade portfolio. The Harvard Economic Complexity Index ranks Australia 93rd out of 133 total countries, with a notably low rating of -0.55 (representing export diversification), while the Observatory of Economic Complexity reports, as of 2022, one third of Australia’s total exports were to a single buyer, China (Harvard Growth Lab, 2024) and (OEC, 2022). An overhead perspective reveals that there is much to be desired.

The Opportunity: Renewable Exports  
However, not all is doom and gloom. In the face of undesirable economic conditions, there is a glaring opportunity for persistent future growth: transforming Australian industry into a renewables exporting superpower. In particular, Australia’s focus could be directed towards two key markets: critical minerals for use in ‘clean energy technologies’ and renewable hydrogen (‘renewable exports’), which according to a 2021 study commissioned by the Australian Conservation Foundation (ACF), the Business Council of Australia (BCA), the Australian Council of Trade Unions (ACTU) and WWF Australia, are forecasted to have global market sizes of $500 billion and $750 billion respectively by 2040 (ACF et al., 2021: 33-43). In combined terms, capturing a genuine share of these global markets has the potential to generate approximately $67.3 billion in annual revenue along with around 143,000 new jobs in Australia by 2040 (with effective government policy to accompany the transition) (ACF et al., 2021: 21).

Australia’s industry is uniquely positioned to dominate these markets by nature of the existing expertise, infrastructure, transport services and natural resources across the country (comparative advantages).

           Critical Minerals Market
For example, in terms of the critical minerals/commodities market, Australia is already well-known for its world-leading resource and mining expertise and infrastructure, which in theory should allow for a relatively seamless transition from iron ore and coal production to critical minerals mining and refining (nickel, copper, lithium, cobalt, rare earth elements (REEs)). These are crucial inputs for many clean energy technologies including battery storage, electric vehicles, wind turbines and more (ACF et al., 2021: 33). Further, Australia is currently in possession of some of the largest known economic reserves of lithium, cobalt, nickel and copper (22%, 20%, 21% and 20% respectively) in the world, while also being the current global leader in annual lithium production (possessing a substantial 49% share of the global lithium market) (ACF et al., 2021: 33). Emerging projects such as Iluka’s fully-integrated rare earths refinery at Eneabba, Western Australia are just the beginning with regards to future opportunities.

            Renewable Hydrogen Market
Secondly, due to Australia’s abundance of open land and natural resources, there is an undeniable opportunity to become a commanding producer of renewable hydrogen, which requires substantial supplies of renewable energy for the electrolysis process (splitting water into hydrogen and oxygen). As identified by the Climate Council of Australia, we receive more sunlight per square metre compared to any other continent, representing enough solar energy to power the whole of Australia 100,000 times over (Croucher et al., 2023: 4). Further, Australia has large areas of available coastal land, with potential offshore and onshore wind sites modelled to be capable of generating an average wind power density exceeding 450 watts per meter (ACF et al., 2021: 16). Finally, large-scale infrastructure that has been used across Australia’s LNG industry has the potential to be repurposed to specialise in renewable hydrogen production.

Ultimately, the benefits of transforming the Australian economy to focus on green exports are clear: domestic Australian companies will be able to diversify their export portfolios by capturing the highly dispersed, growing global markets for critical minerals and renewable hydrogen, while also capitalising on and mitigating the risk of, the global race to net zero. As of 2020, approximately 97% of Australia’s 10 largest export markets (accounting for an astonishing 16% of GDP and representing ‘60% of total export value’) were occupied by fossil fuels or goods/services containing ‘high embodied emissions’ (such as iron ore, natural gas, metallurgical coal, thermal coal, beef, aluminium, gold and more) (ACF et al., 2021: 4-9). As the world moves to renewable energy and continues to legislate enforceable net-zero targets, it is predicted that there will be substantial negative global shifts in demand for said goods, exposing Australia to even more economic risk in the absence of action.

Summary
While there are valid concerns regarding the growth, complexity and stability of the Australian economy, it is times like these where out-of-the-box thinking and ‘taking the leap’ are likely to yield phenomenal returns. While many are uncertain about the future of Australian industry, especially in the mining and resource sectors, it is HJA’s view that renewable exports and commodities are not only the answer, but present an exciting opportunity for Australia to emerge as a world leader. Although, the time for action is now, and as other country’s inevitably catch on, the window of opportunity is closing fast. The positive economic reverberations of the early 2000s ‘mining boom’ are still being felt by Australians today, and HJA believes that while conditions may appear bleak on the surface, the next ‘economic boom’ could be right around the corner, we just need to know where to look.

Contact HJA’s industry professionals, experts and consultants for more information and further advice with regards to transaction and procurement, as well as commercial and project management support in the ever-evolving resource, mining and infrastructure sectors.


References
Australian Bureau of Statistics (2024). Australian National Accounts: National Income, Expenditure and Product. [online] ABS.gov.au. Available at: https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release.

Australian Conservation Foundation, Australian Council of Trade Unions, Business Council of Australia and WWF-Australia (2021). Sunshot: Australia’s opportunity to create 395,000 clean export jobs. [online] Accenture, pp.4–115. Available at: https://d3n8a8pro7vhmx.cloudfront.net/auscon/pages/19495/attachments/original/1634172513/Clean_exports_detailed_report_vf_FINAL.pdf?1634172513.

Croucher, A., Dr Dean, A., Hutley, N., Prof. Flannery, T., Dr Morgan, W., Dr Bradshaw, S. and Dr Rayner, J. (2023). Australia’s Clean Industry Future: Making Things Here in a Net Zero World. [online] Climatecouncil.org.au, Climate Council of Australia, pp.1–75. Available at: https://www.climatecouncil.org.au/wp-content/uploads/2023/03/CC_MVSA0350-CC-Report-Industrial-Decarbonisation_V8-FA-Screen-Single.pdf.

Harvard Growth Lab (2024). The Atlas of Economic Complexity: Country & Product Complexity Rankings. [online] Atlas.cid.harvard.edu. Available at: https://atlas.cid.harvard.edu/rankings.

Janda, M. (2024). ‘Unnecessary rate hike’ plunges Australia’s economy deeper into per capita recession. ABC News. [online]. Available at: https://www.abc.net.au/news/2024-03-06/gdp-december-quarter-2023-meets-low-expectations/103553062.

Observatory of Economic Complexity (2022). Australia (AUS) Exports, Imports, and Trade Partners. [online] OEC.world. Available at: https://oec.world/en/profile/country/aus.

Reserve Bank of Australia (2024). Cash Rate Target. [online] RBA.gov.au. Available at: https://www.rba.gov.au/statistics/cash-rate/.


© HJA (QLD) Pty Ltd