As a global trade war threatens to weaken commodity demand and the world weans off fossil fuels, Australia must find new ways to boost productivity and prosperity.

Australia must find ways to improve its productivity and leverage growth outside of commodity exports, HSBC chief economist Paul Bloxham told the Sydney Accounting and Business Expo on Thursday.

“Almost half of all our exports by value are iron ore, coal and gas, and they look like they’re not going to drive growth in the coming period as much as they have done over the past couple of decades,” said Bloxham.

“We've got to find the next growth engine. We’ve got to pivot the economy to whatever the next growth support is going to be.”

Bloxham warned that trade wars are set to slow down the global economy and reduce international demand for Australia’s primary exports; iron ore, coal and gas. If Australia does not pivot its economy and pick up its languishing productivity growth, we will likely see falling standards of living, the economist said.

To boost productivity, governments should ensure there is healthy competition in the economy, according to Bloxham.

“We should be looking more closely at competition policy,” he said.

“That's how you get businesses to take action; to improve their productivity, to invest in the right locations, to innovate and change their processes.“

He also said that tax reform could increase Australia’s productivity, noting that Australia has not seen serious reform in 25 years.

Thirdly, Australia may have to pivot its economy away from commodity exports if global commodity demand weakens. This would mean finding a new economic growth engine to underpin long-term prosperity, in the way that commodity exports have done for Australia in the recent past.

The energy transition is one area where Australia has comparative advantage, according to Bloxham. Due to our plentiful natural resources - sunlight, windy coastal areas, and space - we are uniquely positioned to produce enough energy for our own transition, and export it to countries who do not have our natural resources.

“We are a big country with lots of space, lots of sunlight and lots of coastal areas. We should be able to produce renewables to make our own energy transition, and also be able to use surplus energy to process minerals and export overseas. This is a big opportunity for Australia,” he said.

Education exports was another key sector to leverage according to Bloxham. He added that Australia should seek to strengthen trade relations with growing South Asian countries including India, Indonesia, Thailand and the Philippines.

Australia’s domestic outlook has begun to appear more optimistic, Bloxham said. Falling inflation, lifting GDP growth and full employment are lifting consumer sentiments and boosting consumption growth.

However, global trade tensions, lagging productivity and a waning demand outlook for key exports mean that an economic transformation could be in order for Australia.