Australian GDP components and economic growth during last 10 years
Economy of Australia is one of the largest and moderately growing economy in the world that produce almost 1.94% of the world’s Gross Domestic Product (GDP) (Hodge 2018). As per the latest report, economy of Australia, produce more than one third of the energy resources alone in the world. Considering the growth of Australian economy, it can be seen that the economy is growing at a moderate rate and as per the nominal GDP rank it stands 13th in the world; and if the Purchasing Power Parity (PPP) is considered, then it can be seen that the Australian GDP ranks 19th that highlights the present scenario of the Australian economy (Hatfield-Dodds et al. 2015). Presently as per the Lang (2015), Australia is going through its 27th consecutive year of growth and through the effective policy utilisation, economy of Australia has been growing with a moderate pace. Though, during 2008 owing to the Global Financial Crisis (GFC), economic growth of Australia has faced downfall and the recent crossfire of China-US trade war has impacted the Australian economy too (O’Neill et al. 2016). This report is aimed to analyse the performance of the Australian economy during the last 10 years while analysing the macroeconomic factors that has made it possible. Next to this, the report will analyse the industries that have faced highest amount of growth and the main drivers of the economic growth of Australia. To demonstrate the governmental policies to promote economic growth during the last one decade this report will explain the major governmental policies and its impact on the domestic economy. To conclude it will provide a summarised overview of its findings while demonstrating recommendations for the Australian economy.
This section of the report will analyse the GDP components of Australia and explain the economic growth factors during the last once decade. As the component of GDP, this section will elaborate the consumption, investment and government expenditures and considering the open market scenario of the Australian economy, it will analyse the export and import situation of the Australian economy.
Consumption is one of the essential component of the domestic GDP and under with the rise in the consumption, GDP of the economy tends to rise. As it can be seen from the basic model of the GDP calculation, Consumption expenditure is one of the main component because economic policymaker focus on this variable in order to enhance the performance of the domestic economy (Shields et al. 2015). With higher level of the consumption aggregate demand tends to rise and with rise in the aggregate demand, level of output of domestic economy gets enhanced.
Consumption
Figure 1: Consumption expenditure of Australia
Source: (tradingeconomics.com 2018)
From the above figure, it can be seen that since 2008 to 2009, there has been a fall in the consumption expenditure in Australia due to the impact of the GFC. Owing to the GFC, unemployment during the period rise that lead to fall in the aggregate demand allowing the consumption expenditure of the Australian economy to fall. Since 2010, it can be seen that there has been sharp rise in the domestic consumption expenditure that has enhanced the growth of the domestic economy (tradingeconomics.com 2018). Next to this, since 2014, owing to backlash of the China-US trade war, there has been fall in the international trade by the Australian economy that has led to fall in the economic growth as well as the consumption expenditure of the domestic economy. Though over the year, since 2014, it has enhanced, however, there has been moderate amount fall in the growth rate of the consumption scenario of Australia.
Government expenditure is another crucial element of the domestic GDP that influence the growth path of the domestic economy by a large extent. With the higher government expenditure, domestic economy face good amount of growth in its endeavours through the development of the infrastructure (Taylor 2018). In addition to this, governmental expenditure influence the sustainability of the domestic economy and enhanced balance in the domestic economy conceal the fluctuation of the domestic economy under negative externality.
Figure 2: Government expenditure of Australia
Source: (tradingeconomics.com 2018)
As per the above diagram, it can be seen that there has been good amount of fluctuation in the governmental expenditure of Australia over the last one decade. During 2008 to 2009, there has been rise in the government expenditure in order to enhance the performance of the market and stabilise the capital market. In addition to this, during the same period, governmental expenditure has aided the domestic economy to survive the subprime mortgage issue taken place due to the GFC (tradingeconomics.com 2018). As per the above figure, it can be seen that, governmental expenditure has fallen during 2014 due to the higher amount of trade tussle in the international economy and later since 2015, it has enhanced allowing the domestic economy to perform better than ever (Bennett et al. 2016). As of now, government expenditure of the Australian economy has been rising showcasing the good performance of the domestic economy.
Government expenditure
Investment expenditure defined the domestic economic performance and the money market situation of the same. With the higher investment, there will be fall in the interest rate and it will reduce the production capability of the domestic economy in the successive period. Contrary to this, if there is lack of investment, then government enhance the interest rate allowing more investors to invest in the schemes introduced by the government (Chapple and Humphrey 2014). With the higher investment, it can be seen that the, government have higher amount of money to invest in the projects allowing the overall performance of the state to rise.
Figure 3: Investment expenditure in Australia
Source: (tradingeconomics.com 2018)
As per the above figure, it can be seen that the investment expenditure of the Australian economy faces higher amount of fluctuation, showcasing the money market fluctuation of the Australian economy. Amount of investment expenditure was highest during 2011 to 2012 when the government has enhanced its interest rate comparatively higher than the US banks, allowing the more investment to be induced in the domestic market of Australia (Summers 2015). In addition to this, it can be seen that investment profile of Australia started to fall since 2014 once the US financial market become on track, where the interest rate gap between the US and Australia started to fall (tradingeconomics.com 2018). With the breaching of the gap, investment in the domestic economy started to fall and the amount of the money liquidity fall gradually allowing the domestic economy to face higher amount of growth. Thus, it can be seen that, over the period during last once decade, investment of the Australian economy has enhanced and it raised the output level of the domestic economy too.
Export position of the economy defines the trade situation of the domestic economy. High amount of export defines the competitive advantage of the domestic economy over the other international market players, whereas, fall in the export defines the poor trading position of the domestic economy (Bell et al. 2014).
Figure 4: Export situation of Australia
Source: (tradingeconomics.com 2018)
As per the figure 4, it can be seen that, over the last 10 years, there has been rise in the export of the Australian economy that highlights the good economic condition of the Australian economy. As per the above figure, it can be seen that high amount of fluctuation in the export situation of the Australian economy can be during 2012 to 2016 and the growth of the export was flat due to the high amount of trade tussle between the US and China (tradingeconomics.com 2018). However, next to 2016 trade scenario of the Australian economy started to enhance depicting the strong position of the Australian GDP.
Investment expenditure
Import also defines the trade situation of the domestic economy and it has negative relation with the GDP growth of an economy. As the import rises, net export starts to falls defining the poor performance of the domestic economy (Findlay and Garnaut 2017).
Figure 5: Import situation of Australia
Source: (tradingeconomics.com 2018)
As per the figure 5, it can be seen that, import in Australian economy fell during the 2008 to 2010 owing to the poor international trade situation. However, post 2010, import gradually started to rise with depiction of the gradual rise in the purchasing power of the citizen.
Comparing both the import and export situation, it can be seen that net export has enhanced due over the time.
Inflation situation of the domestic economy defines the price market of the domestic economy. Higher inflation rate defines the high cost of the goods and services in the domestic economy and vis-à-vis (Luke 2018).
Figure 6: inflation rate of Australia
Source: (tradingeconomics.com 2018)
As it can be seen from the figure 6, inflation rate of the Australian economy has reduced over the years and presently it is as high as 2% from the 5% level of 2008 during GFC (tradingeconomics.com 2018). It highlights the fact that inflation rate of Australian economy has been falling over the years and the purchasing power of the domestic economy has been enhancing gradually. This has enhanced the GDP of the domestic economy of Australia as well (Summers 2014).
As it has been mentioned earlier, interest rate is one of the main issues that defines the fluctuation in the investment portfolio of the domestic economy. With the rise in the interest rate, private investment will rise and with the fall in the interest rate, there will be fall in the private investment too (Coale and Hoover 2015).
Figure 7: Interest rate of Australia
Source: (tradingeconomics.com 2018)
As per the figure 7, it can be seen that, interest rate of Australia has been falling over the last one decade. During 2008 to 2010, interest rate has been higher in order to control the investment portfolio of the economy (tradingeconomics.com 2018). Post this, interest rate has been falling and as of now interest rate has been reducing.
Unemployment rate defines the economic performance of the state and as per the findings it can be seen that unemployment rate over the year has been rising depicting the fluctuating market situation of the domestic economy (Mountjoy 2017). Since 2009, unemployment has been falling that highlights the fall in the job creation under the fall in the different industry (Menegaki 2014). However, considering the labour market situation, it can be seen that number of employment for the skilled and semi-skilled labours has been rising.
Export position
Figure 8: Unemployment rate of Australia
Source: (tradingeconomics.com 2018)
In addition to the same, it can also be seen that employment has been gradually reducing under the falling trading market of Australia.
As per the industry wise analysis, it can be seen that manufacturing industry and the mining industry of Australia has faced large amount of growth during the last one decade. Almost 66% of the domestic GDP is produced by the manufacturing industry and mining industry of domestic economy has also faced mining boom during 2012 and 2014 that has enhanced the performance of the domestic economy (Jerrett and Anderson 2017). As it can be seen, the first mining boom came during 2006 and post this second one came during 2012 when the production of the coal has been enhanced by a large extent (Halligan 2017). Next to this, it can be seen that the performance of the domestic economy enhanced under growth in the mining industry. Comparing the same with the unemployment rate, it can be seen that during 2012, it has fallen by a large extent with the rise in the mining industry production (Bennett et al. 2016). Employment as well as economic performance started to rise again with the fall in the mining boom and again during 2014, mining boom came in the form of the power resource production (Shahiduzzzaman and Alam 2014). With rise in the production of the power resources, it can be seen that Australian economy has faced good amount of export proposition and it can be showcased through the rise in the export situation of the Australian economy as shown in the figure 4 (Summers 2015). Over the year manufacturing industry of Australia has also enhanced by a large extent and it has depicted the solid growth proposition for the domestic economy. In addition to this it can be seen that the effective governmental policies has aided the domestic economy to face good amount of growth in the manufacturing industry.
In order to enhance the performance of the economy, it can be seen that governmental policies of Australia has played a crucial role. Through the effective policies, it can be seen that government of Australia has enhanced the education program and infrastructural initiative has been taken by the firm. Next to this, it can be seen that as the part of the government’s future program, they have promised to create 3, 00,000 jobs by 2020 (Gurr et al. 2017). In addition to this, it can also be seen that government has taken initiative to enhance the production through the export promotion policies.
Conclusion:
As per the above discussion it can be seen that the Australian economy has faced good amount of growth during the recent decade and as per the above analysis, Australian economy has survived well through the various ups and down in the world economic scenario. During the GFC, Australian economy with the effective policy utilisation has enhanced its aggregate demand and demand of the energy resourced from the Australian mining industry has enhanced the performance of the domestic industry by a large amount during the last one decade. Considering the case of the natural resources of Australia, it can be said that the economy is one of the resource rich state and two mining industry boom during the chosen time frame has aided the economy to face good amount of growth through job creation, rise in aggregate demand and growth in case of purchasing power of the citizens. Apart from this, manufacturing industry has showcased goo amount of growth during the last one decade that has aided the domestic economy to have good amount of growth. To conclude, it can be said that main factors that has enhanced the growth of the Australian GDP is its strong mining industry, solid performance of the manufacturing industry and strong trade scenario in the international market has enhanced the performance of the Australian economy.
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