Discuss About The Implications Australian Economy Of Strong?
The global economic scenario though consists of many players, have been consistently dominated by few big economies, over the last few decades. One of such economies is the country of Australia. With the annual GDP of more than 1.5 trillion US dollars, in 2014, the economy poses as one of the largest economies in the world. The country has been the fifteenth largest in terms of per-capita GDP and twelfth largest in terms of nominal GDP in the world. The country has one of the largest external sectors and is the nineteenth largest exporter and importer in the global scenario (Dyster & Meredith, 2012).
Over the last few decades, the country has developed strongly in almost all of the economic aspects, which is reflected in the country’s economic and industrial boom, a highly developed and sustainable service sector, the GDP statistics and the overall population growth and standard of living the country. The country experienced a significant and unprecedented boom in its mining sector, which started from 2003 and had a huge contribution in the shaping up of the economy. The residential sector also has developed hugely, drawing a considerable amount of foreign investments in the last few decades. The external sector of the Australian economy has performed significantly well with time. The robust economic policies and strong strategic framework clubbed with the countries strong trade relations in global economic scenario and efficient banking sector has helped it in remaining comparatively unaffected by the Global Economic Crisis of 2007-2008, which otherwise affected all the other major economies in the world.
In general, the economic growth and the overall health of the economy and the well-being of the residents of any economy can be portrayed with the help of different economic indicators like GDP statistics, GDP growth and growth rate, inflation, employment and overall poverty indicators of that economy. The essay tries to analyze the economic transformations and conditions of Australia, between 2005 and 2014, with the help of the performances of the above-discussed economic indicators (Groenewegen & McFarlane, 2014).
The overall economic performance of any country over certain period can be roughly pictured with the help of the economic growth indicators of the country, like that of the gross domestic product of the country within that specified period of time. Real GDP is a more robust version of this indicator as it is adjusted for price changes and inflation or deflation, as the presence of these phenomena, if not adjusted (as in nominal GDP) can give wrong signals about the economic well being of that country. The growth of GDP and its rate of a country with time show the overall performance and economic progress of the country with time (Potrafke, 2012).
The GDP statistic of Australia has shown considerable fluctuations in the last few decades, owing to several positive as well as negative global and domestic phenomena, having significant implications on the economy of the country. The GDP of the country increased significantly from 613.3 billion USD in 2004 to 1.46 trillion USD in 2014.
Figure 1: GDP Growth Rate of Australia
(Source: Tradingeconomics.com, 2017)
The above figure supports the fact that the economic growth of the country has been subjected to several fluctuations along with time. For example, the global economic crisis of 2007-2008, had significant negative impact on the economy, which can be seen from the huge trough in its GDP growth rate curve, as shown in the above figure (Source: Tradingeconomics.com, 2017).
Again, on the other hand, the mining boom, one of the most significant event in the economic history of the country, which changed the dynamics of the country to a huge extent, increased the GDP growth rate of the country as well and helped the country to emerge as a dominant player in the global economic scenario.
Table 1: Growth rate of GDP in Australia at constant prices:
(Source: Data.worldbank.org, 2017)
It is evident from the above table, that the real growth rate of the economy, though fluctuating substantially, has maintained a growth rate of above 2.5% in most of the years between the time span 2005 to 2014. The growths rates though appear to be low for a country that has already developed these rates are not unimpressive. This indirectly implies that over the years the country has strengthened its economic position, handling the economic hurdles that came on its path (Plumb, Kent & Bishop, 2013).
However, the GDP and GDP growth rate statistics are not enough to conclude about the country’s overall well being, as it does not portray any picture about the distribution of the fruits of economic growth among the residents of the country. To comment about the distribution and overall welfare of the citizens of the country, it is important to take into account the growth of the per capita GDP of that country with time.
Table 2: GDP per capita in Austraia (Purchasing Power Parity adjusted):
(Source: Data.worldbank.org, 2017)
The theory of purchasing power parity states that two counties achieve equilibrium in terms of the exchange rates between the domestic currencies of those two countries, when both the countries enjoy similar purchasing power. The above table shows that the per capita PPP adjusted GDP has consistently increased in the country from 2005 to 2014, despite of the presence of significant fluctuations in its GDP growth rate during the same period. This can be attributed to the impressive performance of the governing and the monetary authorities of the country, which did a commendable job in keeping the standard of living of the residents continually increasing, even in face of economic fluctuations and turmoil.
The regulatory framework of the country being among the most transparent and prudent ones, the country came out of situations like economic crisis and others, relatively less affected in real terms (Kubiszewski et al., 2013). The government has taken several microeconomic steps like deregulating the labor market, reducing strict tariffs for domestic industries in order to make them competitive in the international scenario, privatization and deregulating the financial markets. Apart from a host of monetary and fiscal policies, which are pro-growth in nature, the government also maintains a stable tax structure with reduced distortionary taxes.
For observing the overall economic welfare of a country and its residents, it is utmost necessary but not sufficient to study the dynamics of the gross domestic product of the country only. A lot about the welfare of the residents of a country can be said from the employment scenarios of the country, the prevalence of different types of unemployment and the dynamics in the labour market and wage statistics of the country over time (Bernal-Verdugo, Furceri & Guillaume, 2012).
The rate of unemployment of a country is defined as the indicator of existence of unemployment burden in a country over time. It is measured as the ratio of the total number of unemployed people in a country (those who are eligible to work but are not working at present) by the total number of people in the labor force of that country at that point of time (Hornstein, 2012).
The unemployment statistics of Australia, as can be seen from the table below, tells a lot about the dynamics of the labor market in the country with time:
Table 2: Unemployment rate change and percentage change in Australia:
(Source: Tradingeconomics.com, 2017)
As can be seen from the above table, the unemployment rates in the country, from 2005, followed a negative trend, with the percentage changes being negative almost throughout the time span between 2005 and 2014, thereby implying that the government of the country implemented appropriate measures and regulation of the labor market. However, a major increase in the percentage change in the unemployment growth rate was observed in 2009 (31.42%), much of which is attributed to the effects of the great global recession. This started in the USA and percolated to almost all the economic giants, thereby having huge implications on the Australian labor market as well as tens of thousands of households lost their job (Sala, Silva & Toledo, 2012).
However, the nature of this unemployment was more of cyclical in nature and the economy recovered from the shock eventually. Unemployment rates, however, started rising again from 2012 and has continued till 2014, much of which may be due to the withering out of the initial booming conditions of the country’s mining industry. The nature seems to be structural as the skills of the workers are becoming obsolete with the fall in demand of the mining industry (Gregory & Smith, 2016).
It took a lot of time for the economy to bring back equilibrium in the labor market with falling rate of unemployment after the recessionary period. Much of this success can be attributed to the measures taken by the government. The Australian economy has undergone a shift in the job pattern from full time workers to part time or casual ones, post the Gobal Economic Crisis of 2007-2008. This has led to creation of a huge number of jobs and job finding has become easy. Though these jobs mainly do not have high securities like the former type, the government still facilitates this knowing that it helps in keeping the rate of unemployment low and people can sustain themselves. Apart from this various unemployment subsidies and buffering measures including skill development programs are also undertaken by the government to make the workers more eligible for employment.
Another robust indicator of economic and overall health of a country and the standard of living of its residents is the overall price level prevailing in the country at a point of time. A country with a long persisting high level of prices, in general does not perform well in the economic indicators as high prices in an overall scenario, hurts the well being of the residents of the country significantly and has several implications on the standard of living of the country in general (Kumar, Webber & Perry, 2012) .
The most broadly used indicator to measure the price levels and dynamics in this sector of a country is that of inflation and inflation rates. Inflation refers to the overall increase in the price levels of goods and services of a country in a generalized framework. The rate of inflation of a country over a period, therefore, shows the dynamics of the price levels of the country and indirectly reflects on the changes in the cost of living in that country with time (Hansen, 2016).
Demand-pull inflation- This type of inflation generally occurs in a country with a sudden upsurge in the overall demand of goods and services of a country, thereby creating an excess demand in the market and raising the price levels.
Cost-push inflation- Often the overall cost of production in a country increases due to exogenous and endogenous factors, thereby increasing the prices of the goods and services as well (Grindle, 2012).
Table 3: Inflation in Australia:
(Source: Data.worldbank.org, 2017)
The above table shows the changes in the inflation of the country with time as per the GDP deflator indicators. GDP deflator is the ratio of the nominal and real GDP, multiplied by 100 and measures the price inflation of a country. Much of the inflation that has been existing in the country has been due to the mining boom, which the country had experienced in the last decade (Downes, Hanslow & Tulip, 2014). The mining boom led to creation of huge scopes of employment, which in turn increased the overall demand of the country, thereby causing a demand-pull inflation in the country (Gregory & Smith, 2016). Apart from this the country now and then experiences inflation which are mainly of cost push types, like in the recent period due to the upsurge in fuel price. The economy also experiences the high cost of import from China, which in turn has led to decrease in domestic supply and led to a hike in price levels.
However, the government has done a commendable job in the recent few years in keeping the inflation rate moderately low. In Australia, over the last few years, the standard of living, wage and employment has grown at a higher rate than that of inflation, thereby inflatin having low significance on residents’ lives. The monetary framework, tax structure and the saving incentives provided by the Australian government have contributed cumulatively in keeping the inflation rates low in the country. The external sector of the country, has also strengthened a lot with due course of time and the country has now established robust ties with almost all the economic giants in the world. This in turn helps the country to keep a floating exchange rate and helps to provide buffering in case of any discrete price fluctuation. This was evident from the strikingly better performance of the economy of the country, in keeping the overall price levels more or less floating during the period of Great Recession, 2008, which affected almost all the countries in the world adversely.
Conclusion
From the above discussion, it is evident that Australia has eventually emerged as one of the strongest economies in the global economic scenario and there are robust reasons behind it becoming a global economic giant. The economy has shown significant dynamics in its real GDP growth rate, however, keeping purchasing power parity adjusted per capita GDP increasing continually between 2005 and 2014. This in turn implies that though the economy was effected by the global economic crisis, it somehow managed to come out of the problem, without causing much sufferings to the residents. Much of this stability and consistency of the country’s economy can be attributed to the monetary and fiscal strategic framework desiged by the governing authorities of the country, which kept the economy floating. The unemployment scenario of the country has also been under control except for two or three instances, where the unemployment in the economy was significantly high, much of which being cyclical in nature. There are evidences of existence of structural unemployment in the country, as in the time of the crisis of 2012. However, the government has managed to keep the recent statistics low by changing the structure of the jobs now available to mainly part time ones, thereby making job finding easier. The mining boom in the country, contributed to its inflation rates, due to the existence of demand pull inflation, with the recent trends showing a negative turn due to the withering out of the mining boom effects. The government of the country has in general managed to keep the balance between a steady and low inflation rate and an impressive unemployment management. The external sector of the country is also gaining strength with time, thereby having positive implications on both the price levels and the level of employment creation prevailing in the country. Overall, the country has been and is still performing impressively in terms of economic growth and well-being of its residents and shows potential of emergence as a greater economic power in the future global economic scenario.
References
Bernal-Verdugo, L. E., Furceri, D., & Guillaume, D. (2012). Labor market flexibility and unemployment: new empirical evidence of static and dynamic effects. Comparative Economic Studies, 54(2), 251-273.
Data.worldbank.org. (2017). Australia | Data. Data.worldbank.org. Retrieved 9 September 2017, from https://data.worldbank.org/country/australia
Diamond, P. (2013). Cyclical unemployment, structural unemployment. IMF Economic Review, 61(3), 410-455.
Downes, P. M., Hanslow, K., & Tulip, P. (2014). The effect of the mining boom on the Australian economy.
Dyster, B., & Meredith, D. (2012). Australia in the global economy: Continuity and change. Cambridge University Press.
Gregory, R. G., & Smith, R. E. (2016). 15 Unemployment, Inflation and Job Creation Policies in Australia. Inflation and Unemployment: Theory, Experience and Policy Making, 325.
Grindle, M. (2012). Good governance: The inflation of an idea. Planning ideas that matter, 259-282.
Groenewegen, P., & McFarlane, B. (2014). A History of Australian Economic Thought (Routledge Revivals). Routledge.
Hansen, B. (2016). A Study in the Theory of Inflation. Routledge.
Hornstein, A. (2012). Accounting for unemployment: the long and short of it.
Kubiszewski, I., Costanza, R., Franco, C., Lawn, P., Talberth, J., Jackson, T., & Aylmer, C. (2013). Beyond GDP: Measuring and achieving global genuine progress. Ecological Economics, 93, 57-68.
Kumar, S., Webber, D. J., & Perry, G. (2012). Real wages, inflation and labour productivity in Australia. Applied Economics, 44(23), 2945-2954.
Plumb, M., Kent, C., & Bishop, J. (2013). Implications for the Australian economy of strong growth in Asia. Reserve Bank of Australia.
Potrafke, N. (2012). Political cycles and economic performance in OECD countries: empirical evidence from 1951–2006. Public Choice, 150(1), 155-179.
Sala, H., Silva, J. I., & Toledo, M. (2012). Flexibility at the margin and labor market volatility in OECD countries. The Scandinavian Journal of Economics, 114(3), 991-1017.
Tradingeconomics.com. (2017). Australia GDP Annual Growth Rate | 1960-2017 | Data | Chart | Calendar. Tradingeconomics.com. Retrieved 9 September 2017, from https://tradingeconomics.com/australia/gdp-growth-annual
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