Australia has immense mineral and energy resources. It is the world's leading exporter of coal and one of the world's leading producers and exporters of aluminum, alumina, bauxite, cobalt, copper, industrial diamonds, gold, iron ore, lead, nickel, silver, and uranium. In addition, abundant supplies of natural gas, liquid petroleum gas, and uranium make Australia a net exporter of energy products.

The manufacturing sector has been limited by Australia's small domestic market and labor force and relatively high labor costs fostered by strong unions. A broad-based manufacturing sector was developed, nonetheless, partly due to an extensive range of tariffs and other protective measures. The trade barriers that insulated domestic industry from foreign competition are, today, seen as having restrained the growth of industrial modernization and productivity. Since 1984, successive Australian governments have reduced or eliminated tariffs and sectoral-assistance measures. More recent macroeconomic reforms have boosted economic diversification, export orientation, and the manufacturing industries. Exports of elaborately transformed products are growing, and manufactures' share of total exports has increased. However, the relative size of the manufacturing sector has declined for several decades and in 1997 accounted for just under 14% of GDP.

Since the Australian dollar was floated and allowed to fall dramatically from 1984 to 1987, successive Australian governments have begun to make the manufacturing sector more competitive with imports and more capable of exporting overseas. Corporate taxes have been significantly reduced. Unions have agreed to gradual reductions in real wages. The financial sector has been liberalized and exposed to international competition. The national air carrier, QANTAS, and the Commonwealth Bank have been fully privatized. The national telecommunications carrier, Telstra, was one-third privatized in November 1997. By 1996, a program begun in 1988 had reduced most tariffs to 5%.

Foreign investment has been vital in the development of Australian ranching, transport, and manufacturing. The Australian government welcomes foreign investment congenial to the Australian community, particularly if it is for export-oriented industries and creates employment opportunities. Some restrictions on foreign ownership exist for the media, civil aviation, mining, and certain kinds of real estate. In 1996, cumulative U.S. investment in Australia--the single-most important source of direct foreign investment in that country--totaled more than $65 billion and accounted for 40% of total foreign investment.

Australia suffered a significant recession in 1990-91, followed by rapid growth in 1992-94. Growth has slowed somewhat since, with the Australian economy experiencing a cyclical downturn during 1996-97. Real GDP growth is expected to reach 3.5% in 1997. Inflation, which reached 5.1% during the recovery, has now fallen significantly; in 1997 Australia recorded the first annual price deflation in 35 years. Unemployment continues to hover stubbornly above 8.5%, however, despite some job creation in the second half of 1997. The Howard government inherited a substantial budget deficit in 1996, but has since embarked on an ambitious fiscal consolidation program, which relies primarily on cutting government spending. The government announced an underlying budget deficit, which removes debt repayments and assets from the headline balance, of $2.9 billion for FY 1997-98, and a substantial headline budget surplus. The government intends to balance the federal budget by the 1999-2000 fiscal year. Australia's trade deficit fell during 1995 and 1996, but it has not been erased and is projected to exceed $1 billion in 1997. Australia's net foreign debt has averaged 30%-40% of GDP for several decades and totaled $150 billion (39.7% of GDP) at the end of 1996. Australia's gross external public debt was $78 billion at the end of 1996. The public sector accounts for 40% of Australia's gross external debt; the remainder is the responsibility of the private sector.

Over the long term, Australia's economic prospects generally are bright. The successful conclusion of the GATT Uruguay Round of trade liberalization negotiations should boost overall economic activity, exports, and employment. In addition, the integration of the Australian economy into the rapidly growing Asia-Pacific region and increasing emphasis on using the Asia-Pacific Economic Cooperation (APEC) forum to advance regional economic liberalization should boost future growth.