Australian economy ranked among world's safest

Australia is one of the safest trade and foreign investment destinations globally, ranking alongside Canada, Germany, Norway, Sweden and Switzerland, according to an analysis of 131 countries on Dun & Bradstreet's Global Risk Indicator (GRI).

table1The GRI, which provides a comparative, cross-border assessment of the political, commercial, economic and external risk of doing business, places Australia in the low risk category, with a rating of DB1d (see note 1). Although this equates to the fourth highest possible rating on the GRI, no other country currently has a higher rating. Australia's rating also makes it the best ranked country in the Asia-Pacific region, ahead of Hong Kong (DB2a), Singapore (DB2a) and New Zealand (DB2c). 

Solid GDP growth, relative to other developed economies, contributes to Australia's status as one of the world's safest trade destinations. Likewise, the nation's unemployment rate is low, and its annual average inflation remains within the Reserve Bank's target band. Terms of trade at historical highs and solid commodity prices have also helped Australia avoid much of the turbulence experienced within other advanced economies.

table2

According to Dun & Bradstreet CEO, Gareth Jones says this is a positive result for Australia, however challenges remain both globally and locally.

"Australia's relative economic strength, which is supported by the country's mining boom, and its comparatively limited exposure to European markets are key reasons for the nation's ranking as one of the most attractive trade and investment destinations globally," said Mr Jones.

"However, this result is not an indication that Australia is on a smooth path to continued growth. The local economy is not immune to global market conditions and news from overseas is fuelling the level of uncertainty.

"Closer to home, certain sectors continue to face pressures, particularly as business and consumer spending remain tight, and the high Australian dollar is increasing the burden for exporters."

Australia's key trading partners (see note 2) are also facing challenges, which have the potential to create detrimental knock-on effects to the local market. High inflation and subdued consumer spending in Singapore and the winding down of post-tsunami subsidies in Japan have increased the trade risk associated with these economies. Likewise, in the United Kingdom, fiscal austerity and high unemployment are dampening the countries growth prospects and causing businesses and consumers to keep a tight rein on spending.

The outlook for China, the world's second largest economy and Australia's key trading partner, is of particular significance. China is rated DB3d, the 12th highest risk ranking on the GRI out of a possible 25, and its risk trend is classified as deteriorating. The Chinese economy is being affected by a sluggish property market and softening demand. In 2011, Australia exported $71 billion of goods and services to China, indicating that a continued slowdown in demand could have a substantial impact on Australia's GDP growth.

Other key trading partners South Korea and the United States (US) are rated DB2d and DB2b respectively, with South Korea's rating classified as deteriorating. High delinquency rates in the US and South Korea is heightening the risk of trade with these countries. Consequently, firms that trade with these nations must be vigilant with payment terms.

The uncertainty permeating the global economy was echoed in Dun & Bradstreet's latest Business Expectations Survey, which revealed that Australian business sentiment has plummeted and executives are anticipating a difficult September quarter. Manufacturing and retail firms are particularly pessimistic about conditions for the quarter ahead.

"Volatile trade and investment markets globally are creating heightened levels of uncertainty," said Mr Jones.

"In this environment, executives need to focus on the fundamentals of risk and cash flow management. This is particularly the case for businesses involved in cross-border trade and, for firms trading with countries where the level of risk is elevated or deteriorating."

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Note:

1 D&B's Global Risk Indicator is divided into seven bands, ranging from DB1 through DB7. Each band is divided into quartiles (a-d), with an 'a' designation representing slightly less risk than a 'b' designation and so on. Only the DB7 indicator is not divided into quartiles.
2 Australia's top 10 two-way trading partners are: China, Japan, US, Singapore, UK, South Korea, New Zealand, Thailand, Germany and Malaysia.

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