Discuss about the GDP And Economic Growth Of Australia.
For a while now, the Australian economy has been enjoying consistent economic growth. Among the developed countries, Australia has experienced the longest period of economic growth. Specifically, the country is the only one among developed nations that has enjoyed a period of uninterrupted economic growth (Jericho, 2014). Over the past 5 years, the nation has been experiencing intermittent rise and falls in the level of GDP. By and large, one can attribute these changes in the level of the country’s GDP to various factors within the Australian economy (Perth, 2017). One of the major factors that influence the country’s economic growth is the government policies on matters pertaining to economic growth (Tang, 2017). Thus, this paper seeks to describe the GDP and economic growth of the Australian economy over the last five years. It will also analyze the Australian the Australian government policies towards the country’s GDP and economic growth.
From the graph above, one can note that the level of GDP growth has been rising and falling slightly over the past five years. In 2014, the level of GDP growth in the country was recorded at about 0.8 percent (Australia GDP Growth, 2018). In the following year, the level of growth rose sharply to 1 percent (Australia GDP Growth, 2018). Notably, this is a 0.2 percent increase in the level of economic growth between the year 2014 and 2015. In 2016, the level of economic growth in the country remained constant at 1 percent (Australia GDP Growth, 2018). However, in the following year, the rate of growth dropped significantly to -0.2 percent for part of the year before rising again towards the end of 2017 to approximately 0.5 percent (Australia GDP Growth, 2018). Notably, 0.2 percent the lowest level of GDP growth rate experienced in the country over the 5 year period. This year, however, the economy has recovered from the shocks of the past year and the level of growth is estimated at 0.4 percent (Australia GDP Growth, 2018). Over the five year period, the highest level of economic growth experienced in the country is 1 percent, recorded in 2015 and 2016 (Australia GDP Growth, 2018).
It is worth pointing out that the GDP in the country’s GDP expanded by approximately 2.40 percent in the last quarter of 2017 over the same quarter of the previous year (Australia GDP Annual, 2018). Since the year 1960 to 2017, the country has had an average of 3.37 percent growth, reaching the highest in 1967 at 9 percent. The record low rate of growth was -3.50 percent experienced in 1983. It is worth noting that the annual economic growth in the country over the past five years has also been fluctuating with intermittent rise and falls occasionally. From 2013, the level of annual GDP growth was estimated at 1.8 percent (Australia GDP Annual, 2018). In the following year, it rose sharply and was recorded at about 2.5 percent before further rising again in the first quarters of 2015 to 2.9 percent before falling sharply towards the fourth quarter to 2.2 percent (Australia GDP Annual, 2018). In 2016, the average annual GDP growth rate was 2.7 percent in the first quarter of the year before rising sharply to 3.3 percent in the last quarter of the year. This high rate of annual growth was temporary as the GDP rate dropped sharply in the first quarter of 2017 to about 2.4 percent before rising falling further to 1.9 percent in the second quarter. In the third quarter of 2017, the rate of annual GDP growth rate rose sharply to 2.9 percent before falling again to about 2.4 percent in the fourth quarter of last year (Australia GDP Annual, 2018). In the first quarter of this year, the level of annual GDP growth was recorded at 2.4 percent (Australia GDP Annual, 2018).
Over the past five years, the economic growth of the country has been influenced by various factors. These factors are either demand side or supply side factors. The demand side factors result in a change in the level of aggregate demand in the country (Kent, 2015). Over the past few years, the country has been experiencing increases in the demand for raw commodities from emerging economies. In turn, this led to a huge increase in global prices thereby playing an important role in the dynamics of the Australian economy (Kent, 2015). In addition, the high terms of trade sparked a significant increase in the purchasing power of households. The economy was also characterized by a boom in mining investments in the field of iron and coal (Robinson, 2015). Notably, the mining investment has been a major driver of growth in the country. In addition to the mining sector, the financial sector in the country and other related professional and scientific services have increased the level of economic growth in the country over the past few years (Kent, 2015). The economy has also been experiencing a sustainably long period of political stability. As a result, the economy has been spared from negative shocks to growth in the economy, thereby leading to sustained increases in the GDP of the country.
In addition to the demand side factors, there are supply side factors that have influenced the level of economic growth in the country over the past five years. Firstly, the country has a rich human capital characterized by high levels of training, skills and education (Pettinger, 2017). As a result, the rich nature of the labor force has brought about high levels of productivity and efficiency, thereby helping firm increase their profitability (Pettinger, 2017). The level of infrastructure in the country is also high (Robinson, 2015). As such, the government’s investment in roads, transport and communication has helped the company’s reduce the costs of production, thereby expanding their operations (Pettinger, 2017). It is worth pointing out that the lack of proper infrastructure significantly raises the cost of production and makes it difficult for firms to operate competitively in the local and international markets (Pettinger, 2017). Thus, the availability of infrastructure in the country has significantly contributed to the economic growth of the country.
What is more, the currency exchange rates against the dollar, euro and sterling are very favorable for the Australian economy. In turn, this makes property investment an attractive option for foreign investors in the country. As a result, this boosts the level of GDP in the country, thereby enhancing the level of economic growth.
It is important to note that the Australian government plays an active role in the economic activities of the country. Mainly, it takes part in the form economic decision and formulation of policies that aim at improving the economic position of the country. These policies can be group as either supply side policies or demand side policies. While demand side policies aim at enhancing the level of aggregate demand in the country, the supply side policies work towards improving the supply of goods and services in the economy by enhancing production activities in the country.
By and large, demand side policies aim at boosting the level of aggregate demand in the economy. It is worth pointing out that the Australian government has initiated various policies that aim at raising the level of total demand. These policies comprise of expansionary fiscal policies and monetary policies (Argawal, 2017). These expansionary demand side policies have been particularly important in sustaining the high level of economic growth and increases in the level of GDP (Argawal, 2017). During times of recession, the Australian government initiates these policies to raise the level of demand in the economy and stimulate growth.
It is worth noting the Government, uses monetary policy to enhance the level of demand in the Australian economy. The government executes this policy through the Reserve Bank of Australia. In order to boost the economy, the monetary authority cuts the rate of interest in the country. Notably, a low interest rate regime translates into a reduction in the cost of borrowing for both households and firms. In turn, this encourages the level of economic growth investments by individuals and firms. It also enhances the level of consumer spending on goods and services within the economy. In addition, the lower cost of borrowing reduces the cost of mortgages and people purchase ore houses in the country. In turn, this increases the overall level of aggregate demand in the economy. Thus, the government, through the country’s monetary authority initiates demands side policies that aim at increasing the overall demand for goods and services within the economy, thereby raising its GDP.
The government also utilizes fiscal policies to boost the level of GDP in the Australian economy. Fiscal policies in the country often take the form of an increase in the level of government spending or a reduction in the tax charges to households and firms. As such, the Australian government lowers the rate of income tax charged to households as a means to raise their disposable income (Minifie, 2016). In turn, an increase in the level of disposable income encourages families to spend more on goods and services as they have more money. In turn, this raises the level of aggregate demand in the country. Additionally, it boosts the level of GDP and hence lead to economic growth (Pettinger, 2017).
In addition to reducing taxes, the government sometimes increases the level of government spending with the aim of raising the level of GDP growth in the nation. It is worth pointing out the fact that a higher level of government spending brings about an increase in the number of jobs in the economy (Australia’s Economy, 2017). In turn, this acts as an economic stimulus by boosting the demand for goods and services within the economy. In turn, it raises the aggregate demand level in the economy and, hence, brings about an increase in the level of economic growth in the country. Often, the government utilizes this policies as a means to offset decreases in private sector spending.
In addition to demand side policies, the Australian government utilizes various supply side policies. In the country, these policies take the form of deregulation, free trade agreements tax cuts for firms, privatization, improved infrastructure and improved education and training. These policies are as discussed below.
The level of education and expertise of the labor force plays an important role in the level of productivity of firms in the country. As such, a highly educated and skilled labor force results in an increase in the level of worker productivity, which then improves the profitability of firms (Bailey,2016). An increased profitability of firms then translates to an increase in the revenue to government in the form of corporate taxes and income taxes from employee’s salaries. In turn, this boosts the level of economic growth in the country by raising the GSP level.
The government also uses the deregulation of labor markets as a means to boost the economy of the country. As such, it has initiated policies that make it easier for firm to fire and hire workers in the country. The argument here is based on the concept that if it is easier for firms to hire and fire workers, they are more willing to take on more workers in the first place thereby creating more employment opportunities. The minimum wage in the country is also favorable for firm, thereby allowing them to hire many workers in the country. Consequently, this reduces the level of unemployment in the country, and increases the number of households with stable incomes. As a result, the level of GDP growth in the country is raised.
It is worth noting that the Australian government has signed free trade treaties with various countries as a way of improving the level of economic activities in the country. As such, lower tariff barriers between Australia and other countries increases the degree of trade and offers an incentive for export firms to invest in the country. In addition, such agreements facilitates frictionless trade, thereby enhancing the level of economic activity between countries. In turn, this raises the level of exports from the country and enhances the GDP growth rate in the Australian economy. As of now, the government has signed fee trade treaties with countries such New Zealand (ANZCERTA), Singapore (SAFTA), Korea (KAFTA), China (CHAFTA) Thailand, (TAFTA), and Chile (ACI-FTA), among others (Australia’s FTAs, n.d.).
Over the past five years, the Australian economy has experienced significant growth in its industries. Today, some of the key industries in the country include agriculture, mining, manufacturing, education and Aviation industry.
The agricultural industry in Australia has been experiencing significant economic growth. Mainly, this is due to the fact that the country is mainly dependent on its agricultural industry. A majority of the Australian population is engaged in farming activities (The Fastest Growing, 2016). The growth of the industries over the years can be attributed to constant demand both locally and internationally for the countries agricultural products such wool and meat (Ruthven, 2016).
Today, the mining industry is one of the chief industries that has led to the economic growth of the country. As at 2016, the mining industry contributed to approximately 8.8 percent of the total GDP of the country (Australian Industry, n.d.). The growth of the mining industry in Australia can be a0ttributed to the mining boom which led to an increase in investment in the industry (Philips, 2016. The mining boom was as a result of an increase in the global prices of minerals such as coal and iron ore (Towers, 2017). Thus, investment in the industry increased significantly, leading to growth in the mining sector.
It is also important to point out that the country’s aviation industry has also been experiencing substantial growth over the past few years (Key Industries in Australia, 2016). Mainly, this can be attributed to the fact that the country has become largely dependent on its internal airports as well as international airlines for both travel and transit of export and import goods and services.
Conclusion
All in all, all factors taken into consideration, the Australian economy has been experiencing a high growth rate in its gross domestic product over the last five years. Mainly, this can be attributed to the favorable government policies that aim at stimulating the level of economic activity in the country. Such policies comprise of demand side policies such as expansionary fiscal and monetary policies and supply side policies such as free trade agreements, deregulation of labor markets, and improved education and training. In the last five years, the country’s mining, agricultural and aviation industries have been experiencing significant levels of growth. All factors taken into consideration, the Australian economy has great prospects for growth.
Reference List
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