Discuss About The World Recession Economic Crisis On Tourism.
The nominal gross domestic product or the nominal GDP of a country is a useful and one of the major indicators of growth as it is the sum total of the output produced in the economy. The GDP of a country for a particular year is the aggregate representation of all the gods and a service produced in the country in that year and also includes the monetary value of the household consumption, government expenditure, government investment, and the net export of the country. The Nominal GDP of the country is the base of the calculation of the real GDP as the real GDP is derived by multiplying the nominal GDP by the GDP Price Deflator in order to include the influence of inflation.
Quarterly Nominal GDP growth rate of Australia (2008-2018)
Quarterly real GDP growth rate of Australia (2008-2018)
The real Gross Domestic Product (GDP) of Australia was around 2.4 % in December 2017(covering the last quarter of 2017) as per YOY (year over year measures), where as the Real GDP of the country was 2.9% in third quarter of 2017.The average real GDP of the country was around 3.3% for the time period of Sep 1960 to Dec 2017.The country attained the highest real GDP growth of 9.0% in March 1967 and the lowest real GDP growth of -3.5% in Jun 1983.In December 2017 the monetary value of the country’s nominal GDP was around 348.9 billion USD. The GDP per-capita of the Australia was 54,286.3 USD in Jun 2017.The gross rate of savings of the country in Dec 2017was 24.3%.
Looking at the above graph it can be seen that starting from the last quarter of 2008 the real GDP of the country registered a more or less positive growth quarter over quarter [except some little ditches like 3rd quarter of 2009 when the approximate real GDP of the country became 1.3% which is the lowest growth rate of the time period under consideration] and attained the highest growth rate of 4.5% during the first two quarters of 2012.Afterwards a steady decline in the GDP growth rate of the country can be observed and during the 2nd quarter of 2013 the GDP growth rate of the country reached to an approximate level of 1.8%.
Looking at the graph it can be seen that during the 1st & 2nd quarter of 2014 the real GDP growth rate of the country was around 2.7% again in 2nd quarter of 2016 the real GDP growth rate of the country was around 3.3% which is equivalent to the average GDP growth rate of the country. Looking at the 4th quarter of 2017 it can be seen that the real GDP growth rate of the country is 2.4% which is lower than the average GDP growth rate of the country. Thus the analysis of the GDP growth rate of the country for the period 2008-2018 reveals that there exists lot of variation in the real GDP growth rate as well as overall growth rate of the country as real GDP is a strong indicator of growth and financial health of the country over years.
Let us discuss the underlying reasons that are responsible for the variation in the growth of real GDP as well as overall growth of the country.
During the period of 1999-2008 the GDP of the countries grew at an average annual rate of 3.4% as during this period the Australian economy was hit by the big recession. During the 3rd quarter of 2009 the real GDP of the country dipped to as low as around 1.3% due to the massive global financial turmoil that took place in 2009.The year 2009 is the worst year with respect to the performance of the Australian economy as well as the growth rate of the country. In fact the global financial crisis of 2009 has disrupted the whole growth process of the country and the country took a lot of time to get back the average growth rate of 3.3% or more. The graph of the changing growth rate of GDP describes that the country managed to attain a high growth rate of 4.5% during the first two quarters of 2012 but failed to maintain this growth rate for a longer period. The growth rate of the real GDP of the country has reached to as low as 2.4% during the 4th quarter of 2017.
However it is to be noted that Australia is one of the developed nations with strong economic base that managed to maintain a positive average growth rate of 2.9% in 2009; whereas most of the other developed economies registered either a very low positive growth rate or a negative growth rate as they were badly hit by the global recession that took place during 1991-2008.
From 2012 onwards a sign of recovery can be observed in the growth rate of real GDP as well as growth rate of the country with the rise in the demand of raw commodities from the different emerging economies around the world. The rise in the demand for raw commodities from the emerging economies enhanced the price of the commodities that are supplied by Australia to the different emerging economies around the world and thus helped the country to enjoy profitable terms of trade while making the international exports that helped the country to earn lot of foreign exchange and to improve the performance of the economy over years.
The higher terms of trade enhanced the foreign exchange earnings of the country which in turn increased the supply of money in the hand of the consumers and helped to increase the purchasing power of the households of the country. The rise in the purchasing power of the consumers has increased the aggregate demand for goods and services in the country. The increased demand for the aggregate demand for goods and services has led to the increase in the aggregate demand for supplies of goods and services in the country. Thus the total production of output and services has increased in the country which in turn has pulled up the growth rate of the real GDP of the country over years. Thus the rise in the demand for raw commodities has worked one of the main drivers of growth of the country from 2011, 2012 onwards for the country Australia.
Apart from this, the increased supply of money [that is caused by the rise in commodity prices from the emerging economies] also enhanced the investment in the mining sector and specifically in the segments in the Iron and coal mining. The investment boom of the mining sector has also acted as a major driver for boosting the growth of the economy. The wealthy investment of the mining sector has enhanced the production capacity of the coal and iron mines of the country and these mines are now ready to fulfil the demand of iron ore and coal from the Asian countries. Thus the transition of the mining sector of the Australia from the investment phase to the output generation phase has helped the country to become capable to export those mineral in the different Asian courtiers. Thus the country Australia has become capable to earn lots of foreign currency through the export of the mineral and to strengthen the performance of the economy .Thus it can be said that the investment boom of the mining sector has acted as the second important driver for improving the growth rate of the economy.
The mining sector in combination of the financial sector and the related expert professional service sector has made important contribution in enhancing the value of the GDP of the country during the period under study.
Over years the financial sector is getting more and more important in terms of the contribution to the GDP of the country.
Looking to the other drivers it can be seen that the rises in the non mining business investments are also driving the growth of the country from 2013 onwards.
The increase in the infrastructural investments by the different state governments of the country is also appearing as the other driving forces for the country in the context of the growth of the country.
The service sector like the tourism and education are also helping the country to fetch a lot of revenues from the foreign countries.
Finally the profits generated by the listed companies of the country have also contributed to the growth of the country.
Though the country has received a weak support from the low volume of the consumer spending but still the strong support from the drivers like rise in international commodity prices, rise in mining investment and expansion of the mining capacity, rise in non-mining business investments, rise in the professional sector, rise in the tourism and educational sectors and the rise in investments of the state infrastructural investments have helped the country to pull up the growth rate of the real GDP as well as overall growth rate if the country. It is expected that these drives will help the country to maintain also the future growth rate of the country.
The following major challenges affected the growth rate of the country during the period under consideration.
With the declining prices of the houses, the real estate sector of the Australia delivered very little and or nominal contribution to the overall growth as well as to the GDP of the country. The economists of the country fear of a deeper crash in Australian housing market which can badly affect the recovery process of the growth rate of the country. Thus improving the contribution of the housing sector is one o the major challenges faced by the country during 2008-2018.
The recession of the 1991-2008 very badly affected the growth of the country and the consumers on the basis of their past experience [which they experiences at the time of recession] are showing a very controlled or restrained spending habit. The limited consumers’ spending is keeping the wage level of the country at a low level and the lower wage level is leading to underemployment of the population and also retarding the process of wealth generation. Thus the country is facing the challenge of enhancing the consumers’’ spending of the country.
Though the investment in the mining sector has helped to increase the production capacity of the mining sector for enhancing the international exports of the minerals, but still a substantial part of the investment is still blocked and yet to be transformed in the generation of the production capacity. Thus transforming the mining investments in to the productive investments so that it can contribute to the formation of GDP and growth of the country is another challenge that is faced by the country in the context of the enhancement of the growth rate.
The appreciation of the Australian exchange rate over years are also appearing as a great threat to the service exporting sectors[like tourism] of the country as these sectors are strong sources of revenue earnings for the country and appreciation of the exchange rate will make Australian dollar more expensive in comparison to US dollar and British pound and it will be difficult for the Australian service sectors to sell their service to the international clients and to earn substantial revenue. Thus controlling the exchange rate appreciation is another challenge that is facing by the country as it is badly hindering the growth of the country.
Reference:
Ampcapital.com.au. (2018). The Australian economy – five reasons growth will continue. [online] Available at: https://www.ampcapital.com.au/article-detail?alias=/olivers-insights/march-2018/australian-economy-5-reasons-growth-will-cont [Accessed 18 May 2018].
Battellino, R. (2010). Mining booms and the Australian economy. RBA Bulletin, March, 63-69.
Ceicdata.com. (2018). Australia Nominal GDP Growth | Economic Indicators. [online] Available at: https://www.ceicdata.com/en/indicator/australia/nominal-gdp-growth [Accessed 18 May 2018].
Eslake, S., & Walsh, M. (2011). Australia’s productivity challenge (p. 16). Melbourne: Grattan Institute.
FocusEconomics | Economic Forecasts from the World’s Leading Economists. (2018). Australia GDP – Australia Economy Forecast & Outlook. [online] Available at: https://www.focus-economics.com/country-indicator/australia/gdp [Accessed 18 May 2018].
Gould, J. D. (2013). Economic growth in history: survey and analysis. Routledge.
Jericho, G. (2018). Three reasons Australia’s economy is so resilient – shopping, housing and, yes, mining. [online] the Guardian. Available at: https://www.theguardian.com/business/grogonomics/2016/mar/03/three-reasons-australias-economy-is-so-resilient-shopping-housing-and-yes-mining [Accessed 18 May 2018].
McCombie, J., & Thirlwall, A. P. (2016). Economic growth and the balance-of-payments constraint. Springer.
reddit. (2018). What drives/has been driving Australia’s economic growth? • r/australia. [online] Available at: https://www.reddit.com/r/australia/comments/5y7ajs/what_driveshas_been_driving_australias_economic/ [Accessed 18 May 2018].
Reinhart, C. M., & Rogoff, K. S. (2010). Growth in a Time of Debt. American Economic Review, 100(2), 573-78.
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