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June

Trade talks set to boost Australia and New Zealand investment

Published: Tuesday 26 June 2018

Australian and New Zealand economies are set to receive multi-billion dollar boosts from European Union free trade talks. Investors and migrants into Australia and New Zealand are also likely to benefit from expected increases in investment, business and jobs. What and where are the opportunities?

In June 2018, the European Union is set to begin talks to create important new free trade alliances with Australia and New Zealand that are predicted to reap multi-billion dollar benefits.

Australia wants UK trade, too

At the same time, Australia wants to be the first to start free trade negotiations with the UK on the day after it leaves the European Union, on 30th March 2019.

Australia trade minister, Steve Ciobo, says of the EU deal, “We will be aiming for a high quality, comprehensive agreement that represents a positive win-win outcome, that’s good for Europe, good for Australia and most importantly good for workers.”

“He might have added ‘that’s good for investors and migrants, too’!” commented David Johnson, Founding Director at currency specialist, Halo Financial.

“That’s because the move is predicted to significantly increase trade and investment, as well as creating more jobs, boosting business and benefitting investors and migrants in Australia and New Zealand.”

There should be opportunities for UK companies and investors into Australia and New Zealand, too. According to Catherine Woo, CEO of Australia-United Kingdom Chamber of Commerce, “market opportunities between Australia and the UK remain compelling.”

There are encouraging signs that a Free Trade Agreement (FTA) will be negotiated, which will help to reshape and grow trade between the two countries and act as a blueprint for the UK’s FTAs around the world. As a result, Woo says that “businesses that can engage early and successfully as advisors on the FTA process and its implications are likely to win over the long term.”
 

UK trade with Australia and New Zealand
  • UK total investment in Australia: £220 billion
  • UK is second largest foreign investor
  • UK exports to Australia £8.3 billion per year
  • AUK total investment in New Zealand: £42 billion
  • UK is second largest foreign investor
  • UK exports to New Zealand: £1.5 billion per year
(Source: ONS, Department for International Trade, New Zealand Trade and Enterprise)
 

Catherine Woo believes that “financial and professional services, technology and food and beverage companies are taking a particularly active and early position in discussions on how to best leverage a post-Brexit FTA.”

Meanwhile, for New Zealand, Daniel Taylor, New Zealand Trade Commissioner to the United Kingdom and Ireland, believes key sectors to benefit from New Zealand trade include food and drink, information communication technology (ICT) and agri-technology.

EU is Australia’s third largest trading partner

The EU is Australia's third largest trading partner. Annual bilateral trade was worth more than €47.7 billion/AUD$73.5 in 2017. The European Union’s main exports to Australia are manufactured goods, while Australia's exports to the EU are dominated by mineral commodities and agricultural products. EU companies supply commercial services worth nearly €20 billion to Australia and hold investments in the country that were valued at more than €160 billion in 2016.

EU is New Zealand’s second largest trading partner

The European Union is New Zealand's second largest trading partner after Australia, with annual bilateral trade of more than €8.7 billion in 2017. New Zealand's exports to the EU are led by agricultural products, while EU's exports to New Zealand are focused on manufactured and industrial goods. European Union companies hold more than €10 billion in foreign direct investment in New Zealand.
 

Seeking economic and job growth

Mr Ciobo says the Australian government will seek an ambitious and comprehensive Free Trade Agreement (FTA) to drive Australian exports, economic growth and create new Australian jobs.

“We will be working to secure better access for Australian food and agriculture products, creating the framework for open, fair and equitable trade. The Liberal National Government will also be working to lock in better access for Australian services exporters; expand two-way investment flows; and deliver a more seamless business environment.

“We will explore rules and initiatives to support the digital economy and innovation, which are important for small and medium-sized enterprises (SMEs).”

Australia’s biggest FTA?

Both Australia and New Zealand have extensive experience in negotiating comprehensive, high quality FTAs. As stated by Woo, “Australia is one of the world’s leading players for international trade liberalisation and reform, having successfully negotiated eight FTAs over the last 12 years, including a FTA with the USA that was negotiated in 15 months.”

A particular opportunity for learning is with trade development deals with Asian countries.  Australia has secured FTAs with China, Korea, Malaysia, Singapore and Thailand in recent years, while New Zealand has 12 FTAs with Asian countries and was the first western economy to negotiate a comprehensive FTA with China in 2008.

An FTA with the EU will open up a market for Australian goods and services of half a billion people and a GDP of US$17.1 trillion. Once conclude, it could be Australia's biggest Free Trade Agreement. Mr Ciobo has also said that Australia wants to start negotiating a free-trade agreement with the UK as soon as possible.

New Zealand Gross Domestic Product could rise by $2 billion

New Zealand’s trade minister, David Parker, says an EU free-trade deal could boost New Zealand Gross Domestic Product (GDP) by as much as $2billion, and a 20% increase in exports.

Trade agreements between the EU and Australia and New Zealand would aim primarily at reducing existing barriers to trade, removing custom duties on goods, and giving better access for services and public procurement. The sectors likely to benefit the most from the FTAs are motor equipment, machinery, chemicals, processed foods and services.

The European Commission, which negotiates on behalf of the 28 EU members, says trade chief Cecilia Malmstrom plans to visit both countries to open talks in June before negotiators convene in Brussels in July for initial discussions.

More High Net Worth investors

Trade goes hand-in-hand with investment. Any agreement will provide a welcome boost for the Australia and New Zealand economies and is likely to attract more High Net Worth investors, as well as boosting manufacturing and business. In turn, it is also likely to benefit currency values of the Australian and New Zealand dollar and help create more jobs.
 
New Zealand and Australia set for trade talks - Halo Financial
 
Australia economy up around three percent

In its newly-published 2018 Economic Outlook, the Organisation for Economic Cooperation and Development (OECD) says the Australian economy is up three percent. It believes Australian investment will rise, even before the benefit of the EU free trade deal is added in.

“The economy will continue growing at a robust pace, around 3%. Business investment will pick up, with exports boosted as new resource sector capacity comes on stream. Public infrastructure investment will also support growth. A stronger labour market and rising household incomes will sustain private consumption. Inflation and wages will pick up gradually.”

New Zealand economy also up around three percent to 2020

The OECD provides a similarly upbeat outlook for New Zealand. “Solid economic growth is projected to continue at 3% in 2018 and 2019. Private consumption will slow with lower net immigration and moderation of wealth gains from house price increases. Residential investment will be supported by demand in Auckland and government funding through the KiwiBuild programme. Government infrastructure spending will also rise, while business investment should recover from weakness in late 2017 as capacity remains tight.”

Australia and New Zealand are leading targets for migration, thanks to their thriving economies and investment opportunities.

Currency implications

Over the 12 months to the end of May 2018, GBPAUD has swung 14% from high to low points in the market, illustrating how important it is to keep up with the latest currency market movements.

“This is where having currency expertise on your side becomes invaluable,” comments Halo Financial’s David Johnson. “The variation between Sterling and the New Zealand Dollar over the last year has hovered around 13.67%, ranging from a low of 1.74303 to a high of 1.98172. The importance of maximising your exchange rates comes into sharpest contrast when considering the cost of buying a house for those migrants moving to and from Australia and New Zealand.”

$80,000 on GBP FX rates for home value

“With the average cost of a house in Australia at around $570,000, the difference between the high and low points between Sterling and the Australian Dollar could mean almost an extra $80,000 in your pocket!”

“In New Zealand, the median house price is around $560,000 in April 2018, according to Real Estate Institute of New Zealand (REINZ), “again, providing a potential difference between high and low GDPNZD of more than $75,000,” adds Johnson.

Saving on regular payments

Even if you are exchanging smaller amounts of currencies regularly, perhaps to pay a mortgage or regular bills, you can still make welcome savings by watching the market and setting up an appropriate currency strategy.

Foreign exchange tools

There are a number of currency tools and strategies you can use to protect your investments. One long-established strategy is a forward contract, where you can agree the exchange rate today and set the settlement date for up to two years into the future. These come in many shapes and sizes to suit your needs.

Lump sum payments can be booked as individual contracts, or if you have regular monthly transfers, you can also use that same forward trade facility to arrange a set amount of money to exchange at a pre-determined rate for up to 12 months into the future. This means you are in complete control, able to manage your budgets effectively and protect your Australian and New Zealand investment from exchange rate movements.

Spot rates offered by a currency specialist are also competitive and offer maximum flexibility. Compared to the average high street bank, you could find you benefit from a significant discount on exchange rates, also saving on banking fees and commission payments.   

Halo Financial has produced a free in-depth report that explores the implications and impact of Brexit for individuals and businesses. Download your free Brexit report, Vision: Brexit.
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