Australia Breaks World Economic Growth Record

Economic performances of Australia

Discuss About The Australia Break World Economic Growth Record?

Australia is world’s one of the most developed economies. It is also world’s one of the biggest mixed market economies. Australia ranks second among the most wealthiest nations of the world in terms of wealth per capita, preceded by only Switzerland. In June 2016, total wealth of Australia was AUD 8.9 trillion. The country became 12^th among the largest economies of the world as per nominal GDP and 19^th as per PPP adjusted GDP in 2016. The GDP of Australia was 1.205 trillion USD or 1.69 trillion AUD in 2016. The GDP per capita was $51,850 in nominal terms in 2016, which is a very high figure. It has faced an inflation rate of 1.9% in June 2017, and the rate of unemployment is 5.6% in August 2017 (Austrade.gov.au 2017).

Australia has the record of having uninterrupted economic growth for almost twenty years. No other developed country has this long period of growth. The country has not witnessed any technical recession in the past 26 years. Economic performance of the country has been extremely well in Australia. The global financial crisis of 2007-08 could not affect Australia as much it hit other economies. The major sectors of the economy are services, construction, mining, manufacturing and agriculture. The service sector contributes maximum in the GDP of Australia. 2009-10 saw the mining boom in Australia. Although the growth of the mining sector has declined, still the economy remained stable and resilient and as not faced any recession since 1991. The country ranks 25^th in exporting and 20^th in importing of goods and services. It also entered in Free Trade Agreement with China, Japan, and Korea, which has helped the country to grow its production immensely in the past decade (industry.gov.au 2015). The following essay focuses on the GDP and economic growth of Australia in the last few years.

It has been a great achievement for Australians that a generation of the country has not experienced recession while growing up. There is huge prosperity in the country. Level of unemployment has been low and stable and inflation rate has been low in the past few decades. The country is rich in natural resources. Hence, the mining sector was developed tremendously. The mining sector has generated the maximum employment in the country. However, the non-resource sectors started to develop in the 2000s and the focus has shifted to these sectors. Globalization and economic liberalization have contributed to make the economy open (Battellino 2013).

Flexibility and Resiliency

Figure 1: Real GDP of Australia, 2005-2015

(Source: World Bank 2017)

GDP refers to the Gross Domestic Product, which is the total value of the goods and services produced within the geographical border of a nation, in a given time period, say, one financial year (Mankiw 2014). GDP is of two types: nominal and real. Nominal GDP refers to the value of the goods and services at current prices. On the other hand, real GDP is the inflation adjusted value of production. It is obtained by discounting the nominal GDP by GDP deflator of that year (Ghysels 2016). This, nominal GDP is always higher than real GDP. Figure 1 depicts the real GDP of Australia from 2005 to 2015. From the data of the World Bank, it can be seen that in the last 10 years, the real GDP of Australia has grown significantly. In 2013, it reached a peak at 15.79 billion USD. The trend line for the GDP is rising.

GDP is one of the fundamental elements, which is used to management the economic health of a nation. The level of production of the economy determines how fast it is progressing. There are two ways to measure GDP. One is income approach and the other is expenditure approach. In income approach, the earning of people and firms are added up, and in the expenditure method, the amount of spending of people and firms are added up. The total consumption, government spending, net exports and investment are added up to find out the GDP of a country. Hence, in a healthy economy, the unemployment level is lower, there is higher demand for products, thus labor demand increases, wage increases and economy expand. A considerable change in the GDP is reflected in the stock market movement. In a bad economy, the companies earn less money, and thus, the stock prices are reduced. People get less money and therefore, aggregate demand in the economy falls. Hence, production level falls and economy contracts. This represents negative growth or recession (Rezai and Stagl 2016).

1991 onwards Australia has faced the longest run of growth. The average growth rate per annum is 3.2% (Skynews.com 2017). It is the only country among the other developed nations which has seen the growth for such a long time. Recession is defined by the concept of two successive quarters having negative economic growth. Australia has never faced two consecutive quarters of negative growth since 1991 and hence, the longest run of economic growth has been achieved by the country. The Global Financial Crisis of 2008 was a major event that shook the international economy during this last 10 years. All the major countries were hit hard but not Australia (Adema, Fron and Ladaique 2014).

Factors Contributing to Economic Success

The impressive performance of Australia in the last two and half decades is majorly credited to a variety of elements, such as, economical reforms, strong population growth due to migration and strategic geographical region. According to a report of RBA, parts of the growth can be attributed to the growth of the population. Along with that, the emergence of China is another reason. In the last five years, the main export market, Japan and many other Asian trading partner countries experienced subdued growth; hence the export sector of Australia captured a new emerging market of China (Battellino 2013). In the past 20 years, the Australian economy demonstrated a greater degree of flexibility. Hence, the resiliency has been increased, which has enabled the economy to handle all the external shocks, for example, the break down of the dot.com bubble, Asian crisis and the global financial crisis following the collapse of US subprime credit bubble etc. (Bagshaw and Massola 2017).

One of the major key elements of flexibility is the floating exchange rate of the country. To respond to the various external shocks, the currency has risen and fallen, otherwise the events could have destabilized the domestic economy. During the Asian and Dot-com bubble, the Australian dollar depreciated quite sharply to respond to the deteriorating condition of the international economy. This had helped to insulate the domestic economy (Stiglitz and Guzman 2016). Even during the 2008 financial crisis, the Australian dollar rose sharply along with the commodity prices. It helped in dissipation of pressures, which could otherwise cause the economy to overheat. The temporary sharp fall in the exchange rate helped the economy to remain stable during the financial crisis (Rahman, Shahbaz and Farooq 2015). Other factors include many economic reforms in industrial policies, which made the business sector more open and competitive. Due to labor market reforms, the market had increased flexibility, which could adjust to the changing economic conditions without resulting large level of unemployment or unsustainable wages. Financial sector reforms have brought more capacity for meeting the financial needs of the country and have made the country more attractive to the foreign investors (Janda and Letts 2017).

Hence, investment from domestic as well as foreign investors increased substantially. This has contributed significantly in raising the GDP level of the country. Level of demand in the economy increased as people had more money. Employment level increased, production increased and hence, GDP also increased. The government budget was highly improved too. Level of government debt decreased and Australia became one of the best positioned countries in the government finances. Through stable monetary policies the Australian government kept the inflation level low and made the economy stable. The economy is growing at the rate of 2% to 2.5% per year, which is however lower than the growth rate in the past (Glynn and Rogers 2017).

Conclusion

According to the Australian Industry Report, 2015, by the Australian government, (Dept of Industry, Innovation and Science), all the sectors, barring construction and manufacturing, experienced growth. The mining sector has seen a big change as output grew by 7.6% while employment fell by 15%, as seen in Figure 2. The major growth happened in information and media, accommodation and food services, tourism, financial and insurance and health care and social assistance sector, within the service industry. Even if the international economy is expanding with a very low oil price and low interest rate, the global growth is uneven. Fall in the Australian dollar during 2012-2013 has helped the domestic industries to raise their competitiveness in the international export market during this uneven growth (industry.gov.au, 2015).

Figure 2: Growth in the output and employment by industry, 2014-2015

(Source: industry.gov.au 2015)

Figure 3: Industry share of GDP (%), from 2004-05 to 2014-15

(Source: industry.gov.au 2015)

From the above figure it can be seen that, the pattern of growth among the industries varied considerably. The percentage share of contribution in the GDP by the industries has changed in the last decade. This explains the magnitude and pattern of growth. It can be seen that, business services, social services, mining and construction grew more and contributed more in the GDP than the others, such as, manufacturing, personal services, utilities, agriculture, forestry and fishing (Ivanova 2014).

Figure 4: Change in the composition of GDP, 2004-05 to 2014-15

(Source: industry.gov.au 2015)

The above figure shows that the past decade also experienced the change in the composition of GDP in Australia. GDP is mainly comprised of household consumption expenditure, government expenditure, business investment and net export or trade (Yellishetty and Mudd 2014). In 2004-05, the main contribution came from the household, while during 2008-09, the household contribution fell sharply. Business investment level has increased significantly in 2011-12, but fell sharply in the immediate next period. The level of net export increased considerably in the year 2014-15. The Free Trade Agreements, economic liberalization and easy trade rules in the international market has contributed in the increase in trade (McCombie and Thirlwall 2016). The government spending was constrained by a tight fiscal environment, and hence, contribution has decreased.

Figure 5: Measures of performance of the business, 2013 to 2015

(Source: industry.gov.au 2015)

In figure 5, the measures of performance of the major industries have been depicted. The measures are classified as export markets targeted, total number of jobs, productivity and profitability. Thus, indirectly the influential factors for GDP are considered. In has been found that, advanced manufacturing, food and agribusiness and medical technologies are the most productive and profitable industries along with more jobs and export markets, which could contribute significantly in the GDP. Hence, the type of services is changing over time (Balcerowicz and Rzo?ca 2015).

Figure 6: Growth in industry value added by services industry, 2013–14 to 2014–15

(Source: industry.gov.au 2015)

The above figure shows the growth of the value added services within the service industry. The service sector has always been a reliable source of growth, with more than 60% contribution in GDP and more than 80% of employment. The growth of this sector was 2.3% in 2014-15 (Yang, Zhao and Yanagita 2017). It has been found that, Information, Media and Telecommunication, Accommodation and Food Services and Financial and Insurance services are the major sections of growth within the service sector (Cumming and Johan 2016).

Conclusion

Economic growth is very important for any nation, as it improves the living standard of people and lowers the unemployment level in the economy. In the past two decades, especially in the last 10 years, employment increased significantly. Hence, income per household has increased too. The rise in jobs was more than the rise in population. All the sectors were booming with jobs and opportunities. Over the past 10 years, the rate of unemployment fell to little more than 5% from 9%. Through the growth of the industries, the benefits are spread across the economy. For example, the growth in the gross state product in Western Australia was 4.5% and that in Queensland was 4.8% per year, while the average growth in the other states was in between 2.8% and 3.7%. This gap is explained by movement of population. Over time, more and more jobs were created in almost all the sectors, and Australia was able to achieve an almost even growth among all its states and territories. From the GDP of the nation, it can be seen that the country has been able to gain a stable position in the international economy. With a lower exchange rate, it made its currency cheaper in the international market. Demand for exports increased, which improved the domestic industry. As more jobs are created, people have more money to spend, thus demand for products has increased in both the domestic and international market. This led to a rise in the production of goods and services, resulting in a higher GDP as well as economic growth for the longest period of time.

References

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