The Trans-Pacific Partnership (TPP) which covers 40 per cent of the global economy is soon to be signed by Trade Ministers in Auckland before going to each signatory’s respective parliaments.

It is expected to make Australian and New Zealand Cheese cheaper in Canada, Aussie architects more competitive in Singapore, and Japanese auto components cheaper in Mexico. But is the TPP being implemented in a global economy conducive to Australian exporters and investors?

It was Paul Keating who said Australia needs to realise it gets its security in Asia, not from Asia. But what about economic security?

It is true Asia matters in terms of Australia’s economic security. Asia is important in terms of trade and increasingly important in terms of inward foreign direct investment (FDI) but less so in terms of outward investment.

Asia accounts for 83 per cent of Australia’s total merchandise trade (compared with just under 33 per cent 50 years ago when Geoffrey Blainey wrote his famous book “The Tyranny of Distance” which maybe we can now say has been replaced by the “Power of Proximity “).

But despite these trade patterns, information flows are still Anglo American in nature and markets are more moved by what the Fed does than the Bank of China. This is partly for historical reasons and partly due to how much transparency Australians feel there is in economic institutions in our different trading partners.

THREE BIG ENGINES: CHINA, INDIA AND THE ASEAN BLOC

Of course we need to look at China first as Australia’s number-one trading partner, especially given the market jitters already this year and concern about debt levels.

But, despite some of the doomsday predictions, China is still growing. However it is undertaking one of the most significant economic transformations in world economic history. China’s decade-long double-digit economic growth has ended well and truly as the great Chinese export engine (‘the world’s factory’) left it with too many shippers not enough shoppers.

As a result Beijing is trying to wean itself off its export-led growth model to more focus on domestic consumption and investment. And there has been some success with the tertiary sector already 50 per cent of its Chinese economy with less reliance on manufacturing.

In addition China is still being boosted by back-end spending in what the Chinese call the ‘little country towns’ like Chengdu, Chongqing and Qingdao (these deemed second and third tier cities) of 10 to 20 million plus each in population, providing great markets for Australian architects, urban planners, landscape gardeners and other exporters of professional services.

Yet the World Bank expects China may grow by 6.5 per cent per annum instead of 7 per cent plus. If there’s concern about the stock market remember the Shanghai exchange is not London or Tokyo. The Chinese Stock market still only represents 11 per cent of household income and has much smaller impact than in other more mature economies.

INDIA

India under Prime Minister Narendra Modi’s ‘Modi mania’ is now getting a more favourable press. India was slower to modernise than China in terms of recent late 20th century globalisation having started its reform process in the 1990s was Deng Xiao Ping got China going in 1978.

But it could be said that if China is a test match then India is a 20/20 game with a quick-fire catch up in terms of growth and trade links with Australia. The World Bank regards India as a bright spot in its forecasts this year anticipating 7.8 per cent well above 6.5 per cent for China.

ASEAN

The third economic engine for Australia in Asia after China and India is ASEAN. The ASEAN grouping, originally a defence pact, is now a full-fledged economic community of 622 million consumers representing a market worth $A3 trillion, the third-largest economy in Asia and the seventh largest in the world.

ASEAN is economically diverse from OECD like Singapore to the poorer nations in the Mekong delta like Laos, Cambodia and Myanmar. But many commentators rate Vietnam highly as a hot spot to watch this year along with a high-risk, high-return market like Indonesia.

Some medium term tail winds in the trade sphere will help ASEAN with the TPP expected to raise Vietnam’s economy by 10 per cent by 2030 through market access for its textile clothing and footwear trade and benefit Malaysia ICT sector.

Whilst North-East Asian economies like Japan and South Korea are more advanced they’re not growing as rapidly as ASEAN. The FTAs in place in 2016 are forecast to significantly increase opportunities for Australian exporters in Seoul and Tokyo.

TRADING PLACES

Outside of Asia, Fed chair Janet Yellen has the US labour market back on track as the country recovers, Europe is still suffering from Europhobia and is looking for some Eurovision and the Middle East contains some bright spots like UAE and Qatar who suffer from being the best house in a bad neighbourhood.

In South America there is a bit of ‘trading places’ going on with Argentina on the rise thanks to the new ‘macrieconomics’ under President Mauricio Macri but former economic poster boy Brazil about to go through impeachment of its president.

The World Bank expects the Brazilian economy will contract by 2.5 per cent this year and the authorities can hardly blame it on Rio – in fact the Olympic Games represents one of the few bright spots on the economic calendar for Brazil in 2016.

In fact it’s hard times ahead for the BRIC bloc (with the exception of India) as the world bank is concerned about Brazil, Russia, China and South Africa all dragging on growth.

 

SO WHAT AUSTRALIA?

So what does this all mean for Australia? It has to adjust to lower commodity prices and some movement from the mining boom to dining boom, with more emphasis on agribusiness and demand for food security in Asia.

The falling Australia dollar is helping export competitiveness although 80 per cent of exporters now also import. The rise of professional services in our export profile is also helping us survive the drop in commodity prices although the terms of trade are still healthy in terms of our economic history.

Australia’s economic position is moving further in sync with its geographic one as power of proximity replaces the tyranny of distance. Even if 2016 is a tough year for the world economy Australia is still in the right place at the right time in the Asian century.

Tim Harcourt is the JW Nevile Fellow in Economics at UNSW Australia Business School and author-host of The Airport Economist.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.