Discuss about the Australia Economy.
The Australian economy is one of the major economies of the world. Today, the country boasts a long period of impressive economic progress. Remarkably, it has enjoyed considerable success over the past few years, something that is reflected in the fact that it has not experienced recession for over 26 years. In addition, the living standards of its populace are generally high. What is more, the economy has been experiencing sustainable growth as reflected in its GDP data. Despite its remarkable performance, the economy suffers from high rates of unemployment and inflation. Regardless, the Australian economy is a robust economy with great prospects for growth.
Graph showing Australia’s Gross Domestic Product
Source: (Trading Economics, 2017).
It is important to note that the Australian economy has been exhibiting a consistent increase in its Gross Domestic Product over the last ten years. While some periods have been characterized by increases in its GDP, other periods have seen decreases in the same. In 2007, the GDP was recorded at 853.76 (Trading Economics, 2017).In the following year, the country experienced growth and the GDP was estimated at 1055.33 (Trading Economics, 2017). Afterward, in 2009, the GDP level dropped slightly to 927.17 (Trading Economics, 2017). In 2010, the GDP rose sharply by 215.71. Remarkably, the subsequent years saw a consistent rise in the GDP level from 1390.56 in 2011 to 1538.19 in 2012, and 1567.18 in 2013. Unfortunately, the trend broke in 2014 when the GDP level dropped sharply to 1459.6 (Trading Economics, 2017). The following years experienced further decreases in the country’s GDP. In 2015, the GDP was estimated at 1345.38. Last year, the value fell to 1204.62 in 2016 (Trading Economics, 2017).
Graph showing Australia’s GDP Per Capita
Source: (Trading Economics, 2017).
Despite the fluctuations in the estimated GDP in the Australian economy, the country’s GDP per capita has been rising consistently over the past ten years. As at 2007, the per capita income was recorded at 50952.5. In the year that followed, the value rose slightly to 51788.4 but then dropped to 51651.2 in 2009(Trading Economics, 2017). The figures picked up in 2010 and were estimated at 51874.1. After this period, the per capita income rose over and over again between 2012 and 2016. As at 2012, the GDP per capita was 53348.4 before rising to 53798.4 in 2013. In 2014, the value rose further to 54394.3 before increasing again in 2015 to 54941.9 (Trading Economics, 2017). Last year, the GDP per capita further grew to 55670.9 (Trading Economics, 2017).
It is imperative to note that both the GDP and the GDP per capita of Australia have been increasing over the past decade. Markedly, this trend reflects a pattern of increasing economic growth in the country (Focus Economics, 2017). Over the ten year period, the highest GDP per capita was achieved last year, while the lowest per capita was recorded in 2007 (Trading Economics, 2017). Given the tendency of growth in the country, the economy is expected to experience further growth in the near future.
Although the Australian economy has been experiencing sustained growth for a long time, the country suffers from high unemployment. Fundamentally, the country suffers from high youth unemployment and long term unemployment. Today, the most common forms of joblessness in the country include structural, cyclical, and frictional unemployment. The high rate of joblessness in Australia is a major problem in the country and has significantly affected the rate of economic growth.
Source: (Trading Economics, 2017).
Generally, the rate of joblessness in the country is high. The ABS gathers quarterly reports on the level of unemployment in the country. In June this year, the seasonally adjusted joblessness rate was estimated at 5.6 percent (Trading Economics, 2017). Notably, at this time, the economy added about 14,000 jobs. However, the number of jobless individuals rose by approximately 13,100 individuals. On average, the joblessness rate in the country since 1978 until this year is 6.90 percent (Trading Economics, 2017). During this duration, the highest rate of joblessness was experienced in the last month of 1992 at 11.20 percent (Trading Economics, 2017). In contrast, the smallest rate was achieved in February 2008 at 4 percent (Trading Economics, 2017).
The youth form a significant proportion of the unemployed labor force in the country. At the beginning of the year, the rate of youth unemployment was 13.31 percent (Om, 2017). According to Davidson (2017), approximately one-third of the Australian youth are either jobless or underemployed. As at march, the rate of underemployment was 18 percent (Davidson, 2017). Notably, this is the highest level in the last four decades. For this reason, the joblessness among the young people in Australia is a major social and economic issue.
Graph showing youth unemployment
Source: (Trading Economics, 2017).
In the past year, the level of youth joblessness has been rising and falling intermittently. In July last year, the rate of was estimated at 13.1 percent. In the following quarter, the figure reduced sharply to 12.81 percent and remained constant before falling further to 12.5 percent in October 2016 (Trading Economics, 2017). Unfortunately, joblessness among the youthful population rose sharply to 13.7 percent November. At the end of last year, the unemployment rate dropped by 0.6 percent (Trading Economics, 2017). In January this year, the rate of joblessness fell significantly to 12.3 percent before rising to 13.1 percent in February. As at March, the rate of unemployment was estimated at 13.2 percent but fell down to 12.8 percent in the following month.
Long-term unemployment is another major issue in the Australian economy. In Australia, long term unemployment refers to a continued period of joblessness lasting for 52 consecutive weeks (Treasury, 2017). In June last year, the long-term unemployment rate in the country was about 23.1 percent. Notably, this figure rose to 23.9 percent in April 2016. As at May this year, the long term unemployment rate remained constant at 23.9 percent before dropping by 0.1 percent in June (Treasury, 2017). Last year, the average rate of unemployment was about 45.4 percent. This year, the figure has risen slightly by 0.4 percent.
Additionally, it is crucial to point out that unemployment among the older Australians is a national disaster. Today, it is difficult for the older generation workers to get job opportunities (Wilson, 2013). For this reason, this portion of the population suffers more from long term unemployment. In 2015 for example, old workers experienced the longest duration of joblessness. Individuals aged between 55 and 65 years went for an average of 65 weeks without employment. Additionally, individuals aged 45 to 54 years went for about 63 weeks without a job (Parliament of Australia, 2015).
Given the persistent nature of unemployment in Australia, its government has taken an active role in trying to reduce the problem. Today, its government has initiated measures comprising of both demand side and supply-side policies to help reduce the level of joblessness in the economy. Primarily, demand side policies have been set to reduce demand deficient unemployment. On the other hand, it has instigated supply side measures to control structural unemployment in the country. In addition, the government has set up training workshops to equip the labor force with the required skills to combat structural unemployment. Furthermore, the government extends employment subsidies to firms, thus encouraging them to offer more employment opportunities. Consequently, these policies are meant to increase the level of employment in the economy.
The consumer price index is an important measure of the cost of living in any given country. It indicates the rising and falling of prices of basic commodities within a particular economy. In Australia, the CPI has been growing consistently over the past decade. In the second quarter of 2017, the CPI index was estimated at 110.70, a slight rise from the previous quarter’s 110.50 index point (Trading Economics, 2017). Notably, the second quarter points are the highest since 1950. Over the same period, the smallest CPI was recorded in 1950 at 4.20 index points (Trading Economics, 2017). It is worth noting that the rising CPI levels over the years indicate an increase in the cost of living in Australia.
Graph showing Australia’s CPI
Source: (Trading Economics, 2017).
Inflation is also a major indicator of the health of an economy. Notably, the Australian economy has been experiencing significantly low inflation levels over the past years. In June this year, the rate of inflation was 1.9 percent. Remarkably, this is a drop from the previous quarter’s 2.1 percent. In the last four years, the rate of inflation in the country has been falling with slight increases in some years. In the December quarter of 2014, inflation was estimated at 2.3 percent. However, in January the following year, it reduced to 1.7 percent, before further falling to 1.3 percent in the April quarter of 2015 (Trading Economics, 2017). By July of the same year, the price level in the country rose slightly by 0.2 percent and remained the same throughout the year.
In January 2016, inflation rose further to 1.7 percent before falling to 1.3 percent in April. By July, the figures had dropped to only 1 percent. Unfortunately, the value shot up again at the end of the year to 1.3 percent (Trading Economics, 2017). At the beginning of 2017, the inflation rate rose further to 1.5 percent. The trend continued into the April quarter, and the figures were estimated at 2.1 percent (Trading Economics, 2017). However, in July inflation in the country was reported at 1.9 percent (Trading Economics, 2017). Thus, compared to many economies, Australia has one of the lowest levels of inflation.
In Australia, the main sources of inflation include cost push and demand pull inflation. Profoundly, demand-pull inflation occurs due to sudden increases in demand for commodities in the economy. In turn, excessive demand for services and goods pushes prices upwards, thereby causing inflation. On the other hand, cost push inflation arises when the cost of manufacturing products increases and, in turn, companies raise their prices to maintain their profit margins. Consequently, it leads to a general increase in the price level in the country, causing inflation.
The Australian government takes a keen interest in controlling the level of inflation in the country. For this reason, it has set up policies that aim at reducing price increases (Koukoulas, 2016). More specifically, the government uses contractionary monetary policies such as higher interest rates to raise the cost of borrowing. A higher cost of borrowing discourages spending, thereby leading to lower demand and thus low inflation (Letts, 2016). In the same way, the government initiates contractionary fiscal policy such as higher taxes which reduces the income of households, leading to less demand pull inflation. Consequently, these measures have ensured that Australia remains a low inflation economy.
All in all, all factors considered, the Australian economy is a vibrant economy with great prospects for growth and development. For a while now, the country has been experiencing sustained economic growth characterized by increases in its GDP. In addition, the per capita income has been rising consistently over the past decade. Likewise, the price level in the country is stable, given that the economy experiences relatively low levels of inflation. However, the economy is still battling with high rates of unemployment. Currently, the economy is marred with high youth unemployment, long term joblessness and old people unemployment. Even so, the economy is expected to experience further growth in the future.
References
Australia Consumer Price Index (CPI) (2017). Trading Economics. Retrieved on 14 Aug 2017, from https://tradingeconomics.com/australia/consumer-price-index-cpi
Australia Economic Outlook. (2016). Focus Economics. Retrieved on 14 Aug 2017 from https://www.focus-economics.com/countries/australia Davidson, H. (2017). Third of Australian youth have no job or are underemployed, report finds. The Guardian. Retrieved on 14 Aug 2017 from https://www.theguardian.com/business/2017/mar/27/third-of-australian-youth-have-no-job-or-are-underemployed-report-finds
Australia GDP. (2017). Trading Economics. Retrieved on 14 Aug 2017 from https://tradingeconomics.com/australia/gdp
Australia Inflation Rate (2017). Trading Economics. Retrieved on 14 Aug 2017, from https://tradingeconomics.com/australia/inflation-cpi
Australia Unemployment Rate. (2017). Trading Economics Retrieved on 14 Aug 2017 from https://tradingeconomics.com/australia/unemployment-rate Australia GDP per capita. (2017). Trading Economics Retrieved on 14 Aug 2017 from https://tradingeconomics.com/australia/gdp-per-capita
Australia Youth Unemployment Rate. (2017). Trading Economics. Retrieved on 14 Aug 2017 from https://www.abc.net.au/news/2017-02-08/young-man-protests-unemployment/8250424
Koukoulas, S. (2016, Feb 1). The key to Australia’s economic success: locking in low inflation. The Guardian. Retrieved on 14 Aug 2017, from https://www.theguardian.com/commentisfree/2016/feb/02/the-key-to-australias-economic-success-locking-in-low-inflation
Long-term unemployment (2017). Treasury of Australia. Retrieved on 14 Aug 2017, from https://www.treasury.tas.gov.au/Documents/Long-Term-Unemployment.pdf
Long-term unemployment statistics: a quick guide (2015, Sept 9). Parliament of Australia. Retrieved on 14 Aug 2017, from https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp1516/Quick_Guides/LTUnemployed
Om, J. (2017). Third of Australian youth have no job or are underemployed, report finds. ABC News. Retrieved on 14 Aug 2017 from https://www.abc.net.au/news/2017-02-08/young-man-protests-unemployment/8250424
Pettinger, T. (2017). Policies for reducing unemployment. Economics Help. Retrieved on 14 Aug 2017 from https://www.economicshelp.org/blog/3881/economics/policies-for-reducing-unemployment/
Pettinger, T. (2017). Policies to reduce inflation. Economics Help. Retrieved on 14 Aug 2017 from https://www.economicshelp.org/blog/42/inflation/economic-policies-to-reduce-inflation/
Wilson, C. (2013). Unemployment among older Australians a national disaster, age discrimination commissioner says. ABC News. Retrieved on 14 Aug 2017, from https://www.abc.net.au/news/2013-11-02/older-people-struggle-to-reenter-workforce/5065854
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