A report has forecasted that Australia will increase its total services exports by $45 billion by 2025, with transport and distribution responsible for 5.5 per cent and global B2B services to be the main driver of global export growth.
A report from the Western Union Business Solutions and Oxford Economics – The Global Trade Services Revolution, found that Australia’s services industry is only 1.1 per cent of the GDP, lagging far behind the UK at 9.2 per cent and the US at 2.41 per cent.
Findings suggest that B2B services have become the fastest-growing export category by industry, with Australia leading the world average in employment in services at 77 per cent compared to 49 per cent globally.
The report also analysed trends across eight large developed economies, finding B2B services will be the main driver of global export growth, with financial services also important for key hubs like the USA, UK, Hong Kong and Singapore.
Outside this sample, other predicted ‘hotspots’ for digital services export growth over the medium term include Korea and Japan, Australia and New Zealand, and Qatar and Saudi Arabia.
While the transport of people stays bound by the strictures of governments around the world, freight transport is still a vital part of our economy. The pandemic has taught us that local production in times of crisis is just as important as international services.
A subdued freight transport industry due to slow growth in goods trade has continued to languish with companies shortening their supply chains to improve reliability, lowering the trade intensity of production.
According to the report, Australia is well-positioned to grow exports in knowledge-intensive services industries as distance becomes less relevant to trade.
Right now, digital services represent 1.11 per cent of GDP in Australia, but as international demand increases, Australia should seize the opportunity.
According to Western Union Business Solutions, there is a potential increase of $890 billion in the global value of services trade by 2025 through trade liberalisation.
The report projects the value of international trade in services rising from $6.1trn in 2019 to $8.0trn by 2025, equating to an increase of almost a third in the value of global flows over this period.
It is predicted this growth will be accelerated by the adoption of new technology and digitisation of working practices forced by the onset of the COVID-19 pandemic – which, combined with a shift in attitudes to online interactions, is likely to fuel economic recovery and growth of cross-border trade in services in the coming five years.
Western Union Business Solutions and Oxford Economics’ central forecast scenario envisages a relatively strong economic recovery, but it is also possible that a more pessimistic scenario will unfold, characterised by a steeper near-term contraction and a more prolonged and incomplete recovery. Still, this scenario would only magnify the relative outperformance of digitally-deliverable services.
“For far too long the global service industry has been undervalued and its importance underestimated. This report shows that this needs to change. The economic impact of COVID-19 will be felt for years to come, but we can clearly see that the regions and industries that recognise and appreciate the value of global services will be in a better position to drive future success and ultimately, recovery.” said Andrew Summerill, President, Payments at Western Union.
It is estimated a broad, multilateral liberalisation of trade policies on services could provide an additional 11 per cent boost to the value of global services trade by 2025, which would equal an $890bn increase in the value of these cross-border transactions.
“The pandemic has already super-charged the growth in digital services and highlighted the potential for remote services to transcend global borders,” Andrew said.
“Over the next decade, we’re going to see swathes of new business models redefine the possibilities for cross-border transactions. And in the short-term, global trade in services while being a vital component of recovery, and it will be digitally focused industries that will be the driving force.”