Instructions to students
Explain the interrelationships of the major domestic and global market sectors.
The firms in a domestic economy operate completely within the country. What they normally do is that they can import their supplies or make exports but these activities involve only a small share of the entire business market or activity (Rey, 2015). Domestic markets are normally governed by the security laws of the country for instance the ECC is seen under to be controlled by the government when they are charged excessively for transportation where the money is used to subsidise the fares on the urban rail passengers. On the other hand, international firms’ headquarters might be located in the country but these firms maintain their investments outside the country and have diverse geographic profit centres. The operation of a branch of a firm that is international is governed by the laws of that country (Boniface, Cooper, and Cooper, 2016).
LO3: Assess the changes and impact of key economic and financial indicators on the Australian financial markets.
The changes that have been made by the key economic indicators and the financial indicators on the market of Australia consist of; one, the Gross Domestic product of the nation of Australia has changed. This is because it’s clear that for over the last 12 months, the sale and services offered by ECC was A$800 million which was an increase from A$500 million for the previous four years. The net profit was A$12 million over the last four years. The performance of ECC over the few years shows increased production leading to change in GDP.
In preliminary meetings, many of the board members raised concerns regarding the outlook for global economic growth as well as the possibility that ECC’s contracts with China will not achieve the scale of projected profitability.
Note: You should approach this in the same way you approached the answer from your first analysis task. There is no right or wrong forecast as long as you use appropriate economic reasoning. Use the start date of your study period as your base.
Evaluate the outlook for global economic growth over the next twelve (12) months. Are there any concerns that the board should be made aware of regarding demand for commodities? In your answer include a percentage forecast for global economic growth.
In the year 2017, there was 3.8 percent world economic growth with noted rebound in global trade. This was as a result of investments in advanced economies, growth in Asia and also notable upswing in Europe (Zweig, 2018). There were also signs of recovery in commodity exporters. Therefore the global growth is expected to rise this year and especially in the next twelve months by a 3.9 percent. This will be achieved through the support of favourable market sentiment, financial conditions that are accommodative and the repercussions of expansionary fiscal policy in the whole world. The slow commodity prices should give the exporters’ way to improve gradually. In the market that is emerging, the economies are expected to grow as gradual recovery in the projected increase for the period of the next twelve months. Though, around 40 markets that are emerging in developing the economy are expected to grow slow as per the terms of the capita than the economies that are advanced. Therefore addressing the board, it needs to be aware of the expected market conditions in the next 12 months and have good plan on how to prepare accordingly (Rodrik, 2014, p.5-39). This is because there is higher expectation of increase in economic growth and thus demand for coal is expected to raise, hence need for East Coastal Coal Company to plan accordingly.
East Coast Coal Ltd: Background
(b) The Chinese authorities are presently in the process of restructuring their economy. Explain what is meant by this restructuring, what are the implications for future Chinese economic growth and what sectors of the economy will be impacted by this restructure.
Basically what structuring means is different organization or in other words different organization. Economic structuring on the other hand refers to the phenomena of shifting of the Western urban for instance from manufacturing to service sector economic base (Lu, 2018).The positive implications that might arise in the future as a result of China’s economic growth are, like reduction in poverty. This is because as at now, only 3.3 percent of the population leaves below poverty line which is set at 2,300 Yuan. Compared to the world’s population, China has 20 percent of the population (Burke, Hsiang, and Miguel, 2015, p.235). Therefore, as its people become richer, there will be more consumption. Companies will be making efforts to sell to this market that is the largest in the world hence tailoring their products to the interests of the Chinese. Another positive effect of China’s future economic growth is that it will make China a world economic leader and the signs of this are visible today because China is the biggest aluminium and steel producer because exports rose by 25 percent in the year 2015. Chinese technology companies will became the words market leaders (Gitman, Juchau, and Flanagan, 2015). For instance Huawei from China is the words top cellular equipment maker and it also becoming the world leader in the development of 5G technology. Lenovo also is a world-class personal computer maker. We also have Xiami which is No. 1 Smartphone from China.
On the other hand, the future Chinese economic growth might have some side effects in that the government will incur expenditure total of debt-to-GDP ratio of more than 260 percent. There might be also the creation of ultra-rich professionals who want more individual liberties and reside in urban areas where there are more jobs. Since the economy will be grown the savings that people save might bring back low returns because of low interest rate on their savings therefore there would be no much expenditure and ensure reduced domestic demand and slow growth (Rey, 2015).
Then discuss how in your opinion (a) will impact on ECC’s operations over the next twelve months. Justify your opinion.
With the expectations that the global economic growth will increase over the next twelve months, there expectation on high income generation due to increased sale of Coal globally. In addition to increased income growth, ECC Company might make investments on other areas of their desire. Therefore increased economic growth will lead to more investments by the company. Increased economic growth will lead to more money being acquired. Some of this money might be put aside for the conservation of the environment. This is because there are always environmental effects associated with the mining of coal (Dabla-Norris, Kochhar, Suphaphiphat, Ricka, and Tsounta, 2015). Also in addition to all these benefits of increased economic growth and the increased income generation from good sales of coal, the company will not experience a lot of borrowing from other financial institutions.
References
Boniface, B., Cooper, R. and Cooper, C., 2016. Worldwide destinations: The geography of travel and tourism. Routledge.
Burke, M., Hsiang, S.M. and Miguel, E., 2015. Global non-linear effect of temperature on economic production. Nature, 527(7577), p.235.
Dabla-Norris, M.E., Kochhar, M.K., Suphaphiphat, M.N., Ricka, M.F. and Tsounta, E., 2015. Causes and consequences of income inequality: a global perspective. International Monetary Fund.
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson Higher Education AU.
Lu, N., 2018. The dynamics of foreign-policy decisionmaking in China. Routledge.
Rey, H., 2015. Dilemma not trilemma: the global financial cycle and monetary policy independence (No. w21162). National Bureau of Economic Research.
Rodrik, D., 2014. The past, present, and future of economic growth. Challenge, 57(3), pp.5-39.
Zweig, D., 2018. Internationalizing China: domestic interests and global linkages. Cornell University Press.
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