Analysis Of GDP And Economic Growth Of Australia In Last 5 Years

Introduction to Australia

Australia is also known as Commonwealth of Australia. It is a sovereign and comprises of Australian continent mainland, Tasmania and many other small islands. Australia is the sixth largest country in the world (by total area) and largest country in Oceania. The country uses Australian Dollar (AUD) as its official currency. It is one of the best nations to reside in, as per the international comparisons of education, wealth, health and life quality (BBC News, 2018). The country follows Westminster government system and inherits the laws of the British who once colonised the nation.

GDP is one of the main indicators of a nation’s health. It represents the total value of all the commodities produced within the domestic territory of a nation, in an accounting year.

Australia has one of the largest mixed market economies in the world and is highly developed. It has an annual real GDP growth of 3% (International Monetary Fund, 2018). It had a GDP per capita (corrected for PPP) of US$46.012.328 in 2016 (The World Bank, 2017).

Table 1: Growth rate of Australia in the past years

(International Monetary Fund Data, 2018)

The country has shown the following growth trend from the years 1990 to 2022 (International Monetary Fund Data, 2018). Over the years, the country is able to maintain a high growth rate over the years.

Figure 1: The trend of Australia’s growth rate

(International Monetary Fund Data, 2018)

The following graphs show data for GDP of Australia for the years 2013 and 2018. The GDP for the year 2018 is expected to be 3%. For the year 2017, the GDP growth rate in Australia was 2.3%. Five years down the line, GDP growth rate for Australia was 2.2%. Though there has been a negligible increase in the growth trend over the past five years, the country expects to achieve the growth rate of 3% in the present year, i.e. 2017.

Figure 2: GDP of Australia in 2013

(International Monetary Fund, 2018)

Figure 3: GDP of Australia in 2018

(International Monetary Fund, 2018)

Economic growth is affected by the prevailing government policies. It employs resources which lead to the well-being of the masses and improves their living standards. The resources are allocated for development programs on the basis of major issues in the nation (Vujko & Gaji?, 2014).  It motivates the citizens and communities to invest in factors that are non-material and therefore, enriches their lives.

GDP and Economic Growth of Australia

Australia will enter its 28^th year of consecutive economic growth in 2018-19. Economic growth was expected to strengthen over time span of five years despite the international uncertainty. Low interest rates were able to support the growth by reducing the borrowing cost for the households.  (Australian Government, 2016). The low rate of interest resulted in the allocation of resources to the services. The growth in employment has been underpinned by the moderate growth in the wages. And the unemployment was expected to fall by 5.5% by 2017 June quarter. Measures were taken and policies were formulated to have steady growth in household consumption, supported by lower petrol prices, employment growth and falling saving rate among the households.

The Australian government can increase the economic growth rate by a mix of tax reforms. The mix should increase the participation of women and old-aged people in the workforce. These reforms have the potential to increase the Australia’s GDP by $25 billion by 2022. The overall impact of the two can be close to $70 billion. There is a need for improved policies promoting innovation, competition and innovation (The Conversation, 2012).

The official unemployment rate is not that high but the rate of under-employment is high. The Reserve Bank of Australia (RBA) has been facing issues in the usage of conventional monetary policy. It is difficult to strongly improve the growth in demand and to increase the inflation rate too its target level of 2-3%. The Reserve Bank had been asking for government interference to increase the demand by the fiscal means.  The recent developments in the two policies in the past five years can be summed up as follows:

Monetary policy aims to increase the economic growth by stabilising price and minimising inflation rate (at a certain level) (Lut & Moolio, 2015). It influences the level of interest rates, currency and inflation (Niculae, 2013). In the year 2008, the RBA had cut the official interest rate sharply to cope with the financial crisis. They were eventually were increased back to normal after the aversion of the serious financial crisis. The policies of 2011 to decrease the interest rates had its impacts in the coming years of 2013 and 2014. The economy was operating below the trend rate. There was a continuous fall in the iron and coal ore prices which lead to drop in the dollar value. In 2015 (February), RBA reduced the interest rates twice in 2015 and 2016 each to achieve a recordable low of 1.5%.

Australian Government policies towards GDP and Economic Growth

Economic growth was also believed to be higher because of the 3.75 percentage point fall of 2011. This created a boom in the market of housing. It increased the house prices and new constructions in Melbourne and Sydney.

The monetary policies did not have a huge impact because of the high level of debts of households. The borrowings were reduced. The lower interest rates increase the household debts (Gittins, 2017).

Fiscal policy is preferred by the policy makers. Its basic function includes allocation, redistribution and stabilization. It is an economic growth tool and represents the government revenues and its expenditures (Macek & Jank?, 2015).

Philip Lowe pressurised the government to assist monetary policy in increasing demand. There was preoccupation of the government in ‘fiscal sustainability’ through realisation of budget surplus. Weak growth in tax collections, led to little or no success in its achievement.

The objective of the fiscal budget was to increase the surpluses and have a stronger base through spending cuts as well as tax increment.  ‘Zombie spending cuts’ were removed from the budget by the Senate. They were expected to increase the savings. The effect had worsening effect on the budget balance in the year 2017-18 by over $13 billion spread over four years. The new decisions of tax increase, which were incorporated in the budget, are expected to have negligible effect on the balance of the budget. It will yield an improvement of $20 billion spread over four years. The main measures to increase the revenue included the indirect taxes levied on the five big banks’ liabilities.

There was a net increase in the infrastructure spending by $5 billion. This included the second Sydney airport, inland railways and national broadband network.

As per the Grattan Institute report, there are three game changers in case of Australia’s economic growth which supposedly provide it with large economic benefits in a shorter span of time. GDP could rise by $25 billion per year if the Australian government collected greater revenue from pro- economic activity and efficient taxes and lesser from the inefficient or distortionary ones. The GST should bring under its ambit the sectors like education, food and health. The revenue should be used to bring down the income and corporate taxes; and compensate the ones on welfare. The women must be encouraged to be a part of the workforce. The reforms in the tax structure will lead to greater female participation as they will be able to retain a greater share of their income, after paying the tax and other expenses. The changes in taxation, means testing and benefits can considerably improve the participation rate, as can be seen from the case of Canada. The other factor to impact the growth rate can be the increase in the retirement age. This can increase the GDP to $25 billion by 2020, given the age was increased to that of New Zealand (The Conversation, 2012).

Industries growing in Australia

The main industry in Australia is the primary industry. The manufacturing industry also has an important part in the growth process. The growth trends discussed above were led by the developments in its major industries. The industries lead to overall growth in the economy. The establishment or growth of an industry leads to increased employment in the economy. It generates new job opportunities for the masses and leads infrastructural development. The industry plays an important role in the GDP and growth rate in an economy. Industries that play a major part in the growth in the Australian market are healthcare, finance, metal and mining metallurgy, energies and utility industry and many others.

This industry includes the pharmaceuticals, pathology operators, biotechnology, medical practice, medical devices companies and junior life sciences. Healthcare is an important industry because it looks after the well-being of the masses who involve in the production and income generation process. It has ASX market capitalisation of $48 billion  (Business Chief Australia, 2011).

Australia is searching for cost and expenditure reduction especially in medicine sector.  Also, this industry has shown growth because of the ageing population in Australia (Productivity Commission- Australian Government, 2013). There is greater dependency which demands higher healthcare, homecare and childcare services. To increase the life expectancy of the people, there is a need for higher quality services for the healthcare. People in the contemporary world are more aware and conscious about their health and habits. They pay greater attention and spend greater portion of their income on health expenditures and insurances.

This industry is expected to grow the most by 2022. There is a great scope for employment opportunities. The plausible reason for the same is the ageing population in Australia. The industry will experience a growth rate of 16.1% and 250,500 jobs. National Disability Insurance Scheme is expected to increase the demands for home-care and child-care services (Hamilton, 2017).

This industry comprises of the investment banks, trading banks, insurance companies, asset managers and others. Financial industry is an important industry which provides other industries and people with necessary funds for their growth and development. It is the backbone of any economy. In terms of market capitalisation, it is the largest sector in the Australian markets. It has ASX market capitalisation of $468 billion  (Business Chief Australia, 2011).

The firms in Australia are rearranging business models, rebuilding the disconnected customer relationships and reconstructing workforce. Also, there has been a growth in the tourism sector in Australia. It has led to increased demand for financial assets. These factors have triggered the growth in the financial sector.

Healthcare industry in Australia

This industry has helped Australia come out of the financial crisis. It comprises of a large number of globally diversified companies and small miners. This industry makes use of the natural resources and is concerned with its extraction, refinement and distribution. Since the resources are naturally occurring ad vary largely over the globe, Australia is able to earn high profits by exporting the same to the resources deprived nations. It has over 600 hundred companies listed on the ASX and the industry has ASX market capitalisation of $320 billion  (Business Chief Australia, 2011).

The resources are scarce in nature and also vary significantly across the globe. There has been constant research to develop cost-efficient extraction methods and alternative resources that renewable. Australia is abundant in natural resources. There is a scope for discovery and tapping of these resources in Australia. The growth in the past five years can be contributed to this.

This industry has been a gift of natural resources. The abundance of resources provides the potential to extract energy and utility. The sector focuses on the development and exploration of resources like uranium, coal, gas, oil and other renewable energy assets. It has made Australia a major LNG and Uranium supplier to Asia. The resources contributing to the utility side are electricity, water and gas infrastructure, generation and distribution. It has an ASX market capitalisation of $155 billion  (Business Chief Australia, 2011).

Owing to the abundance of natural energy resources in Australia, there has been high growth in this industry. The resources are need tapping and cost-efficient extractions. There is scope for further research in alternative fuels. Australia requires techniques that provide more of renewable energy, energy efficiency and recycling measures.

This industry was involved in the construction, engineering and building at the time of global economic crisis. They performed activities of transportation, infrastructure and commercial buildings. This industry lays base for the establishment of other industries and has a huge scope. When the opportunities in the country reduced, the firms of this industry expanded their operations in US, Asia, Middle East and Europe. The ASX market capitalisation for the industry is $142 billion  (Business Chief Australia, 2011).

With the growing economy, this sector is expected to have a growth rate of 10.9% by 2020. The demand will be from the commercial development and residential projects. The construction is important for the development of all the industries and thus, there is huge potential for this sector to grow (Hamilton, 2017).

This industry takes up a major share. The main products are beverages and malt manufacturing, meat and meat products, sugar and confectionery manufacturing, dairy products, vegetable and fruit processing, cereal food and flour mill manufacturing, bakery products, oil and fat manufacturing, and seafood processing (Future in Australia, 2018).  

This industry is expected to grow by 11% by the year 2020. The demand of food and beverages is relatively inelastic as it includes all the basic necessities. With the reduced tax rate the disposable incomes of the consumers increase and the demand for these goods rises.

Conclusion

The Global Financial Crisis had led to inflation problems. The budget of Australia used to be in great surpluses. The surplus fell sharply after the crisis and did not fully return to its initial. The interest rates were able to boost the economic growth through increased demand. It is expected that Australia will achieve a growth rate of 3% in the current year. The major industries of Australia had helped it to keep the GDP stable even in the financial crisis. The low interest rates improved the construction sector. The demands of other commodities also improved.

The major concerns are the ageing population of Australia. This not only impacts the GDP by reduced output but also increases the burden on government spending. The dependents are provided pensions. The people have to retire because of the retirement age and have nothing to do with the working environment. If the retirement age is increased, there will be an increase in the GDP of Australia and fall in the expenditure. The ageing population leads to boom in the healthcare sector. There is a scope for improving female participation in the workforce.  Tourism has led to growth in almost all the sectors. Also, there is greater demand for financial institutions and travel companies. Australia has a huge scope for research and development in its resources. The pact signed by Australia to increase the use of renewable energy has reduced the burden on natural resources.

References

Australian Government, 2016. Statement 2: Economic Outlook. [Online] Available at: https://www.budget.gov.au/2016-17/content/bp1/html/bp1_bs2.htm [Accessed 02 May 2018].

BBC News, 2018. Australia country profile. [Online] Available at: https://www.bbc.com/news/world-asia-15674351 [Accessed 02 May 2018].

Business Chief Australia, 2011. The Top Five Wealthiest Industries in Australia. [Online] Available at: https://anz.businesschief.com/leadership/169/The-Top-Five-Wealthiest-Industries-in-Australia [Accessed 27 April 2018].

Future in Australia, 2018. Industries. [Online] Available at: https://www.futureinaustralia.com/students/major-industries-in-australia/ [Accessed 02 May 2018].

Gittins, R., 2017. The Effectiveness of Fiscal and Monetary Policies in the Australia Economy. [Online] Available at: https://business.uow.edu.au/content/groups/public/@web/@bus/documents/doc/uow237861.pdf [Accessed 03 May 2018].

Hamilton, J., 2017. What will you do in 2022? Australia’s growing industries. [Online] Available at: https://www.opencolleges.edu.au/blog/2017/10/09/ca-2022-australias-growing-industries/ [Accessed 02 May 2018].

International Monetary Fund Data, 2018. IMF Data. [Online] Available at: https://www.imf.org/en/Data [Accessed 27 April 2018].

International Monetary Fund, 2018. Real GDP growth- Annual percent change. [Online] Available at: https://www.imf.org/external/datamapper/[email protected]/OEMDC/ADVEC/WEOWORLD [Accessed 27 April 2018].

Lut, M. & Moolio, P., 2015. The Impact of Monetary Policy on Economic Growth in Cambodia. Journal of Management for Global Sustainable Development, 01, pp.40-63. Available at: https://www.researchgate.net/publication/303487211_The_Impact_of_Monetary_Policy_on_Economic_Growth_in_Cambodia [Accessed 03 May 2018].

Macek, R. & Jank?, J., 2015. The Impact of Fiscal Policy on Economic Growth depending on Institutional Conditions. Acta academica karviniensia, 15(02), pp.95-102. Available at: https://www.slu.cz/opf/cz/informace/acta-academica-karviniensia/casopisy-aak/aak-rocnik-2015/docs-2-2015/Macek_Janku.pdf [Accessed 03 May 2018].

Niculae, M., 2013. Monetary Policy and Its Role in Macroeconomic Stability. International Journal of Academic Research in Business and Social Sciences, 03(01), pp.520-24. Available at: https://www.hrmars.com/admin/pics/1511.pdf [Accessed 03 May 2018].

Productivity Commission- Australian Government, 2013. An Ageing Australia: Preparing for the Future, Commission Research Paper. Productivity Commission Research Paper, Available at: https://www.pc.gov.au/research/completed/ageing-australia/ageing-australia.pdf [Accessed 03 May 2018].

The Conversation, 2012. How can Australian governments change the game for economic growth? [Online] Available at: https://theconversation.com/how-can-australian-governments-change-the-game-for-economic-growth-7548 [Accessed 03 May 2018].

The World Bank, 2017. GDP per capita, PPP 9current international $). [Online] Available at: https://data.worldbank.org/indicator/NY.GDP.PCAP.PP.CD [Accessed 27 April 2018].

Vujko, A. & Gaji?, T., 2014. The Government Policy Impact on Economic Development of Tourism. Economics of Agriculture, 61(03), pp.789-804. Available at: https://ageconsearch.umn.edu/bitstream/186526/2/16%20EP%203%202014.pdf [Accessed 03 May 2018].

Order an Essay Now & Get These Features For Free:

Turnitin Report

Formatting

Title Page

Citation

Outline

Place an Order