Describe about the Business Economics for Economy of Australia .
The main aim of the essay is to analyze the economy of Australia and its recent economic performance. It provides an overview of the current economic outlook of the economy. The essay critically reviews the government’s policy approach to meeting the key domestic challenges that are identified in the economy. Economy of Australia is one of the largest mixed market economies in the world where the major contribution to the gross domestic product or the economic growth is from the service sector mainly the mining sector. Its important trading partner is China and mainly the economy indulges in exporting coal. The agricultural sector also contributes to the growth of the economy. Since it is a mixed economy both the private sector and the public sector play an important role in the economy. Government plays an important role in solving the domestic challenges that an economy faces through policy approaches.
Australian is an economy that has experienced continuous growth in the past years. The unemployment rate continues to fall. The price level is stable, borrowings of the government are low and the financial system is stable. By 2012 the economy faced continued growth at an average of 3.5 % per year. The service sector plays an important role in the economy and accounts for seventy percent of the total gross domestic product where the mining sector accounts for ten percent of the GDP (Cia.gov. 2016). The service sector in Australia gives employment to seventy five percent of its population. The economy was unaffected during the time of global financial crisis due to stability in the banking system and financial market. It is the world’s nineteenth largest exporter and importer. The main trading partner of Australia is china and its exports mostly comprises of coals, and other auto locomotive bodies. The economy of Australia is also rich in its natural resources such as gold, copper, iron, uranium and other natural gases due to which it attracts high level of foreign investment. Australia is also an important member of World Trade Organization (WTO), APEC and G20. The economic performance of the country can be measured by taking into account its GDOP rate, inflation rate, unemployment rate, interest rate and economic growth. Australia’s economic performance can be measured by looking into its GDP growth rate and other economic attributes. The economy of Australia is expanding from investment in mining boom to other economic activities as well. According to the information given by the reserve bank of Australia and other statistics the economy of Australia is recently growing at a rate of 2.3 %. The forecast shows that the economy is expected to grow further in the year 2016 at 2.6 % and 2.8 % in 2018. Agricultural sector also plays an important role in the economy (McLean 2013).
Table: Economic performance of Australia
|
Year |
2011 |
2012 |
2013 |
2014 |
2015 |
|
Population (million) |
22.5 |
22.9 |
23.3 |
23.6 |
23.9 |
|
GDP per capita (USD) |
66806 |
68021 |
64617 |
61178 |
51358 |
|
GDP (USD bn) |
1504 |
1559 |
1506 |
1443 |
1226 |
|
Economic growth (GDP annual variation %) |
2.7 |
3.5 |
2.0 |
2.6 |
2.5 |
|
Unemployment rate (%) |
5.1 |
5.2 |
5.7 |
6.1 |
6.1 |
|
Inflation rate (%) |
3.3 |
1.8 |
2.5 |
2.5 |
1.5 |
|
Policy interest rate (%) |
4.25 |
3.00 |
2.50 |
2.50 |
2.00 |
|
Exports (%) |
0.1 |
5.8 |
5.9 |
6.7 |
6.1 |
|
Imports (%) |
11.1 |
6.2 |
-1.8 |
-1.6 |
1.0 |
(Source: Tradingeconomics.com. 2016).
The above table shows that the economic growth of the country is increasing and so is its population. It is worth notifying that the exports of the country have grown to large extent while its import has fallen showing a positive trade balance. Its exports mostly comprises of natural resources. The price level in the country is falling indicating positivity. The economy is stable. The imports of the country are falling that indicates that the country is being self sufficient and the producers are indulging in major production to provide goods to the domestic market. The revenue of the government increases due to positive trade balance as the government earns large amount of foreign reserves from exports. The interest rate is decreasing that means the government wants to increase the investment and the money supply in the economy. The economy is expected to expand further marking a new level of growth. The total wealth of Australia as of 2014 accounts for 6.4 trillion dollars. It is the major exporter of natural resources such as iron ore, and agricultural products. The rate of poverty is low in economy due to equality of income and opportunities. The four main components of the free market of the economy are financing, trading, manufacturing and services. The main measure to evaluate the economic performance of the country is through measuring the GDP growth rate. GDP growth is the percentage change in the growth of the country from the previous after being adjusted for the rate of inflation (Bell et al. 2014).
Table: GDP growth rate of Australia
|
Year |
GDP growth rate in percentage. |
|
2011 |
2.4 % |
|
2012 |
3.6 % |
|
2013 |
2.4 % |
|
2014 |
2.5 % |
|
2015 |
2.6 % |
|
2016 |
3.0 % |
(Source: World Bank Group. 2016).
The economic performance of the country is increasing with the country facing economic growth in percentage.
Though the growth condition of Australia is good the economy faces few challenges as well that the government policies can solve. The major challenge or issue that it has recently face was a fall in the GDP productivity that is the labor hours that workers give. This means that the workers are working for fewer hours. It has weak productivity which fell by 0.3 % over the year. The unemployment rate is also raising specially the youth unemployment in many cities of Australia. The wage rate in Australia is falling that is hampering the productivity. The standard of living of people is also falling due to the decline in the wage rate. The major challenge is then fall in the standard of living of people. The earnings of people are falling and the taxes are rising in the economy that is hampering the income of the people and its standard of living. The jobs that are being created are not productive in nature (Walras 2013).
Since Australia is a mixed economy government policies can solve economic problem that Australia faces. The main problem is of unemployment and fall in productivity. Government can create more jobs that are productive in nature. It should expand the job opportunities specially the youth of Australia. Another way of increasing standard of living in Australia is declining the tax rate is that people have more of disposable income to spend on satisfying the personal needs. The government should concentrate on improving the service that it provides to its public by developing infrastructure and other public facilities such as government hospitals and roads. The government should formulate the fiscal policies that aim at improving the economic performance of the country (Baumol and Blinder 2015). The policies framed should be fair in nature. The government can increase the labor productivity by increasing the wage rate and they get and ensuring whether the work conditions that firms provide is good or not. The workers should also be given other benefits and schemes such as food rationing and other employee benefits. The tax charged should be reduced. Expansion of government spending will help in start up new industries that will create new job opportunities for youth that will help solving the problem of unemployment in the economy. Tax credit is an appropriate policy that the government can use to improve unemployment rate. A policy of minimum wage will help the labors get higher wages for its work that will help the labors increase its productivity. The other challenge that the economy is facing is rising population. Government can take appropriate steps to reduce population so that productivity automatically increases in the economy. Increase private and government spending will encourage investment that will improve infrastructure. The quality of training and knowledge should be increased so that the workers stay motivated to work better. Various demand and supply factors can also help in improving the performance of the country. Proper training will also help the economy to fill the skill gap. This help to raise the employment in the economy. Establishment of new public sectors will increase the money supply in the economy and also create new job opportunities for the youth of Australia. But the government should create such jobs that help in increasing productivity (Carraro and Siniscalco 2013).
Conclusion
The Australian economy is a developing one where the growth of the economy is continually increasing. The growth condition of the economy is good and is expected to grow in future. The forecast says that the economic performance of the country is likely to increase in 2017 and 2018. The only problem with the economy is that youth unemployment in the economy is rising in the country and the standard of living is falling due to fall in productivity. Government policies can help in improving the economic performance further by applying right fiscal policies and reducing taxes.
References
Baumol, W. and Blinder, A., 2015. Microeconomics: Principles and policy. Cengage Learning.
Bell, L.W., Moore, A.D. and Kirkegaard, J.A., 2014. Evolution in crop–livestock integration systems that improve farm productivity and environmental performance in Australia. European Journal of Agronomy, 57, pp.10-20.
Carraro, C. and Siniscalco, D. eds., 2013. Environmental fiscal reform and unemployment (Vol. 7). Springer Science & Business Media.
Cia.gov. (2016). The World Factbook. [online] Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/as.html [Accessed 28 May 2016].
McLean, I.W., 2013. Why Australia prospered: the shifting sources of economic growth. Princeton University Press.
Tradingeconomics.com. (2016). Australia GDP Growth Rate | 1959-2016 | Data | Chart | Calendar | Forecast. [online] Available at: https://www.tradingeconomics.com/australia/gdp-growth [Accessed 28 May 2016].
Walras, L., 2013. Elements of pure economics. Routledge.
World Bank Group. (2016). World Bank Group. [online] Available at: https://www.worldbank.org/ [Accessed 28 May 2016].
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