In the contemporary era, the rivalry of bringing advancements and progress has increased in industrial, social and educational sectors. Specifically, these advancements are conducted with the motive of making contribution to the development and progress of the overall economy or nation (Bhattacharya et al. 2016). The terms like the economic growth or economic developments of Australia acquire few particular variations in relation to the nation. The current essay intends to analyse the economy of Australia in terms of its development and growth based on various parameters. This would help in finding out the influential dynamics affecting the GDP of Australia and its growth-related aspects. The report would focus on various growth areas like inflation, unemployment, net export, net exchange rate and government debt amount.
Considerable changes have been observed in the economic conditions in the previous years; thus, increasing the knowledge base and civilisation of the individuals in acting upon any of the situation (Ball 2014). This particular essay would enable in clarifying the facts and concepts regarding the Australian economy and its associated difficulties along with extensive success. It is a free market economy and the economic advancements of the nation have been remarkable, as it did not have to withstand any recession from the past 25 years. Thus, report would describe the growth of Australia in past five years and its impact on the overall society.
Economic growth shows the ability of an economy to produce goods and services and these are compared from one period to another. It can be measured both in nominal and real terms, the real term is inflation adjusted. Aggregate economic growth usually is calculated in terms of gross national product and gross domestic product. Thus economic growth can be considered as a boost in aggregate productivity. Aggregate gain in productivity is correlated with increased average marginal productivity. This means that labourer becomes productive.
There are four reasons that can result in economic growth, firstly is a finding of better economic resources, secondly is the growth of labour force, thirdly is usage of advanced technology and fourthly is increase in specialization.
Economic growth shows the condition of the economy by considering general path and magnitude of growth for the economy as a whole.
In the words of Bussière, DelleChiaieand Peltonen(2014), gross domestic product is primarily a economic measure associated with the market value of products and services produced quarterly or yearly. With the help of GDP, the economic presentation of the overall nation could be ascertained and the same could be contrasted with those of the other nations. The identification of GDP price is mainly carried out in three ways, which would fetch identical outcomes principally. The economies mainly use three approaches in ascertaining their GDPs, which comprise of income approach, production approach and expenditure approach. However, the GDP growth rate helps in gauging the growth rate of the economy. There are four basic GDP aspects, which drive the overall GDP growth rate. Personal consumption is considered as the most significant constituent that comprises of retail sales. The business environment drives the growth of GDP greatly that include the levels of construction and inventory and this has been evaluated. The third drive associated with the growth of GDP is the spending of the government, since it is highly significant to initiate the economy after encountering recession. The other constituents comprise of the imports and exports, in which the exports drive positive growth, while rise in the imports has negative effect on the growth specifically.
Figure 1: Annual growth rate of GDP
Source: (Tradingeconomics.com, 2017))
In context to the growth of GDP in Australia, it has been identified that the nation has experienced remarkable growth and the GDP is ascertained worth $1,339.54 in the year 2015 and the Australian GDP value is 2.16% of the global economy. In the prior five years, it has been identified that the nation has encountered considerable progress and growth. The Australian GDP has achieved an approximate growth of 3.3% in the second quarter of 2016, which has enhanced from 3.1% in the first quarter comparing to the market expectation of approximately 3.4% growth (Byrneset al. 2013). It has been observed that in the second quarter of 2012, this has been taken into account as the biggest diversifications bringing annual growth of 2.9% in the financial year of 2015. Moreover, it has moved ahead without any of the technical recession. Thus it can be observed that Australia has economic growth has taken place in an considerable amount. This economic growth attained by the country can be explored by considering other indicators that contribute to economic growth.
Inflation rate is measured as soon as the general level of prices of goods and services increases whereas the purchasing power of the currency falls. Inflation rate thus basically show the rate at which prices of goods and services increases over a period of time. Another reason behind increase in inflation rate is excessive printing of money and this increases money supply of an economy and thus the demand falls. It may also occur due to certain commodities becomes rarer and more expensive. Reserve Bank of Australia control inflation rate by increasing and decreasing money supply in an economy.
There are four types of inflation, categorized by their rate. Categorically inflation may be creeping, galloping , hyperinflation and walking. There are also definite types of asset inflation and wage inflation.
Creeping inflation occurs when prices increase to 3 percent a year or less than this amount. Walking inflation ranges from 3 to 10 percent in a particular year. It is injurious for the economy since it encourages economic growth too fast. People initiate to spent more than their requirement, just to avoid future higher prices. Galloping inflation prevails when inflation increases to 10 percent or more. Money loses value so rapidly that business and employee income cannot cope up with costs and prices. Foreign investors also stay away from these countries. The economy becomes unbalanced, and government leaders lose reliability. Hyperinflation occurs when prices rocket more than 50 percent a month. This is very rare. Stagflation occurs when economic growth is stagnant but there still is price inflation. Finally Deflation, which is the opposite of inflation, it mainly shows fall of prices.
Figure 2: Inflation rate
Source: (Tradingeconomics.com, 2017)
Australian inflation rate in the previous years was very high. In 2013 fourth quarter recorded 2.2 percent inflation rate and throughout the 2014 inflation rate was as high as 3 percent. However, from 2015 onwards inflation rate started to fall. This fall has taken place in a significant manner.
High inflation rates damaged Australia’s economic performance, by undermining living standards of the country. This high inflation rate has impacted GDP level in 2013, as during that year country recorded low GDP rate. There are three domains that was affected by this high inflation rate. 1. Inflation tends to slow economic growth and national production while unemployment rises. This is because it undermines consumer and business poise, ultimately by deteriorating private consumption and investment spending, and slowing AD. In turn, this slow AD impacted GDP and employment to fall. Inflation also weakens international trading position Of Australia. It turn exports expensive and thus it becomes less attractive to global buyers and for this reason export income decreases. The impact of this in Australian economy was it ended up with a deficit in trade and devaluation of exchange rate (Brailsford, Handley and Maheswaran, 2012).
Federal government’s (the Reserve Bank’s) one most significant economic aims was the goal of achieving low inflation because it is expected that it will improve material living standards (Gregory and Smith, 2016). Government has undertaken policies to lower inflation rate and these are:
Thus, the year 2013 have witnessed hyperinflation in Australia, while post 2015, country is facing stagflation.
The unemployment rate is the share of the labor force that is jobless. It is an indicator that is lagging in nature, it normally rises or falls with changing the economic conditions.. When the economy performs poorly and jobs are insufficient, the unemployment rate tends to increase. When the economy performs well and jobs are comparatively abundant, it tend to fall.
Figure 3: Unemployment rate
Source: (Tradingeconomics.com, 2017)
The above figure shows the unemployment rate of Australia. The figure shows that before 2013 unemployment rate was low, it was during fourth quarter of 2012 when the rate commenced to increase , In 2013 , rate was observed to be 5.4 percent in the first quarter after that a fluctuation was observed , highest rate recorded during this year was 5.8 percent. 2015, shows that unemployment rate reached 6.4 percent and rate is high as compared to previous years. Although in 2016, unemployment rate begun to fall.
Australia’s employment increased by 3,900 persons in September 2016, the number of unemployed persons decreased by 3,100; the unemployment rate decreased by 0.1 percentage points to 5.6 per cent; the participation rate outstanding remained unchanged at 64.7 per cent; and the employment to population ratio remained unchanged at 61.0 per cent.
Last twelve months shows employment increased by 1.3 per cent underneath the average percentage year-on-year increase over the last 20 years. Over the same period the trend employment to population ratio decreased by 0.1 percentage point to 61.0 per cent. Trend full-time employment reduced by 7,900 persons in September, reflecting ongoing weakness over 2016. Full-time employment has fallen since December 2015. In comparison, part-time employment, which augmented 11,800 in September, has amplified by 130,000 persons since December 2015, with its share of total employment rising from 31.1 per cent to 32.0 per cent. The trend for unemployment rate dropped by less than 0.1 percentage points in September 2016 to 5.6 per cent. Over the past year, unemployment has decreased by 44,800 persons (Elsby, Hobijn and ?ahin, 2013).
Thus this result that is observed regarding unemployment rate is consistent with that of GDP level post 2015 and inflation rate post 2015. It shows that with growing GDP and reduced inflation rate, unemployment rate also decreased.
Net export shows a country’s total exports that is deducted from the value of imports.It is mainly used to measure country’s expenditure in an open economy. Net exports equal the sum by which foreign expenditure on a home country’s goods and services exceeds the home country’s expenditure on international goods and services. A country’s currency if becomes weak, its exports become competitive in global markets, helping to create net exports to be positive. On the other hand, a country’s currency if a strong currency, then its exports becomes costly, and national consumers can buy foreign exports reasonably, factors which can result to negative net exports.
Figure 4: Net Export rate
Source: (Tradingeconomics.com, 2017)
The above figure indicates that the period from January 2014 to April 2014 shows high net export while the years post 2014 April shows decline in net export.
Figure 5: Net Export rate
Source: (Tradingeconomics.com, 2017)
This figure shows that net export during the first quarter of 2016 has decreased from the previous year. Several factors owe to decreased level of net export.
Australian exports and exporters have to face three problems over the period of 2014-15. Firstly, Australian economic growth rate decreased due to largest export market. This decrease was mainly due to the fact Chinese GDP growth had slowed down to seven percent by the second quarter of 2015 and this resulted annual growth to decrease again to 6.9 percent in the third quarter. Secondly, world trade has been unsuccessful to gain any impetus over the past years, promoting both the IMF and the WTO to downgrade their trade forecasts (Eichengreen and Gupta, 2013).
Exchange rate shows the value of one currency in terms of another currency. This rate can be fixed and floating. Fixed exchange rate is maintained by Reserve bank of a country while floating exchange rate is maintained by the demand and supply mechanism of market.
|
Year |
Exchange Rate (vs USD) |
|
2012 |
1.04 |
|
2013 |
0.89 |
|
2014 |
0.82 |
|
2015 |
0.73 |
|
2016 |
0.72 |
Table 1: Exchange rate
Source: (Abs.gov)
The value of the Australlian dollar (AUD) has been declining over the past years and this may be due to the fact meandering down of product prices that started in the middele of 2014. Devaluation of the Australlian dollar was encouraged by the Reserve Bank of Australia and this resulted in sluggish growth of the economy.(Chowdhury, 2012). The depreciation of terms of trade of Australia started during the early point of the year meanwhile did not affected the economy and even did not shown any signs of reduction. While the Chinese economy was continuously creating structural problems that resulted in restraining growth and thereby creating the fall of demand of Australia’s exports. Moreover, volatility of Fed rate hike and strengthening of USA dollar (USD) added to create descending pressure on the value of the Australian Dollar(AUD)
Government debt is the amount of debt that is faced by the national government. T is mainly issued by the government in terms of foreign currency with a view to finance the issuing country’s development as well as progress. Constancy of the issuing government can be observed by the national governments debt investments. This debt can be of two types internal and external. Internal debt is the debt owed to lenders who resides within the country. On the other hand, external debt is the debt is owed to lenders who resides outside the country. Another way of classifying government debt is by the period till the repayment of the debt is due. Debt can also be classified as short term debt that lasts for less than a year, while long term debt lasts for more than ten years. The debt to GDP ratio show the ratio between a particular country’s government debt with that country’s gross domestic product. A low debt to GDP ratio shows that an economy that produces and sells products have adequate amount to pay back debt without suffering from additional debt.
Figure 6: Government debt to GDP
Source: (Tradingeconomics.com, 2017)
In 2016 Australia public debt was 517,457 million dollars, has augmented 54,821 million since 2015.This total means that the debt in 2016 reached 41.09% of Australia GDP, 3.46 percentage point increased from 2015, when it was 37.63% of GDP. The figure shows the evolution of Australia debt. It has risen since 2012 in international debt terms, when it was 77,854 million dollars and also in terms of GDP percentage, when it amounted to 9.96%. According to the Australia Bureau of Statistics, Australia per capita debt in 2016 was 21,442 dollars per resident. In 2015 it was 19,326 dollars, afterwards increased by 2,116 dollars. The position of Australia, relative to the rest of the world, has worsened in 2016 in terms of GDP percentage (Fan, Titman and Twite,2012).
Conclusion
The above report on Australian economic growth over the last three years shows that economy has attained economic growth over the last past year’s shows positive growth. Australia has been able to perform well over the past couple of decades. This resulted in an added advantage for the economy, as this flowed from a long term economic development and the implementation of rigid economic policies. There was also constant variation observed in the performance of industries, thus it can be observed that the benefits of growth was spread moderately across the states and across the population in form of income distribution. With time the economy now functioning close to its capacity, and thus expected to take additional improvement in productivity and regimented policies for this growth to be sustained.
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