Australia’s Economic Development and Prosperity
Discuss about the Investment In Australian Economics Development.
The global economy has over the years. experienced considerable economic dynamics and growth with different countries emerging as important and dominant players with time. However, over the years, several economies have consistently remained as dominant and influential ones in the global economic framework, with steady development, consistent prosperity and growth in the economic parameters with time (Dilley 2012). The international phenomena like that of Globalization, trade liberalization, technological innovations and infrastructural development have facilitated the growth of these economies even more and their industries, businesses, trade and commerce activities as well as the overall economic welfare of the resident populations have increased manifold.
Australia is one of the primary ones of such highly developed and globally dominant economies, which over the decades have shown impressive growth trends, much of which can be attributed to the robust development of the industrial, commercial and the international trade activities, which in turn contributed hugely in the overall economic growth of the country and economic welfare and a comparatively higher standard of living of its residents. The country has been performing positively in all the economic indicators and is also known for its economic stability, a primary reason of which can be the policy framework and efficient working of the government (Joshi et al. 2013). The prosperity of the economy of Australia has also made it an attractive place for both the international investors as well as the immigrant population of different countries across the globe. Australia has experienced huge inflow of immigrants over the years, most of whom come in search of better economic prospects and a higher standard of living.
In spite of all its stability and prosperity, the economic conditions of the country have been subjected to considerable fluctuations and turmoil over the years. In the last five years also there have been significant economic activities in the country, having both positive as well as negative implications, which can be seen from the trends of the different macroeconomic indicators. In this context, the report analyse and discuss the Australian economic growth in the last few years, thereby discussing the policies present in this aspect. Lastly, the report tries to discuss the nature of growth of the industrial sector in the country in the last few years.
As can be seen from the above discussion, Australia is considered among the most stable and developed economies across the globe over the years and is also the largest mixed economy existing in the world. The economic indicators of the country also show this massive economic prosperity of Australia as the same ranks fourth in global Nominal GDP and is also the second wealthiest nations across the globe in terms of wealth per adult citizen, ranking only below Switzerland.
Analysis of Macroeconomic Indicators
Much of this growth and economic prosperity of the country and its residents can be attributed to the long term industrial development and especially to the high productivity of the country and too several booms which the country has experienced in its course of development, which also includes the recent mining boom (Gibson, Carr and Warren 2012). The trade relations of Australia with almost all the other major economies in the world and their long-term persistence is also another primary reason behind the economic prosperity of the country and the government and their policy framework play pivotal roles in sustaining the economic prosperity and growth of the country over the years.
In the last five years, the economy of Australia has been subjected to considerable fluctuations and economic activities, much of which and its implications can be seen from the performances of the different macroeconomic indicators over this particular period of time. These macroeconomic indicators primarily include the Gross Domestic Product and its growth rates, the unemployment rate, the rate of inflation, the investment and consumption expenditures and others, each having their own significance and implication on the growth of the economy. These factors, for Australia are studied and analysed as follows:
The Gross Domestic Product of a country is a measure showing the total productivity and its dynamics in the country, in terms of value of goods and services produced within the country.
Figure 1: Gross Domestic Product of Australia
(Source: Tradingeconomics.com 2018)
The GDP of the country, which rose from 2012 to 2013, can be seen to be falling to some extent post 2013. However, in 2017, the GDP rose to 1690 AUD billion, the hike being quite impressive. The fluctuating GDP trend can be better explained by observing the GDP growth rate trends in the concerned period, which is as follows:
Figure 2: Australia: Growth Rate of GDP
(Source: Tradingeconomics.com 2018)
The GDP growth rate of the country can be seen to be subjected to considerable fluctuations. However, the magnitude of fluctuations can be seen to be increasing with time, with a huge negative trend in end 2016 and a rapid recovery in 2017, which in turn explains the fall in the GDP of the country in 2015, 2016 and the more than proportionate increase in the same in 2017 (Dolman, Gruen and Treasury 2012).
However, the GDP and its trend in the country cannot significantly express the overall economic welfare of the population of the country as the same depends on the purchasing power of the people and the amount of income accrued in their hands. For which the PPP adjusted GDP per-capita has to be taken into account.
Gross Domestic Product and its Growth Rate Trends in Australia
Figure 3: PPP adjusted GDP per-capita
(Source: Tradingeconomics.com 2018)
This indicator has been increasing steadily which is opposite to that of the previous ones.
However, apart from GDP and its variants there are also many other significant macroeconomic indicators in a country and concentrating only on GDP, may yield biased interpretations and assertions as the economic growth of a country is a much broader phenomenon than only the growth in the GDP of the same. Taking this into consideration, the other economic welfare indicators and their performance in Australia in the last five years are as analysed as follows:
The amount of money spent on personal consumption of the population of the country also highlights the economic welfare of the people residing in the country, which, in case of Australia can be seen as follows:
Figure 4: Spending on consumption in Australia
(Source: Tradingeconomics.com 2018)
This indicator of economic wellbeing can also be showing only positive trends consistently over the specified duration. However, the increase in consumption expenditure may also be due to increase in the overall price levels, which if true, may indicate towards a fall in the economic welfare of the residents (Hatfield-Dodds et al. 2015). Thus, to see if the increase in the consumption expenditure in Australia is due to increase in economic welfare or due to increase in the overall price levels, the rate of inflation of the country needs to be observed.
Figure 5: Inflation in Australia
(Source: Tradingeconomics.com 2018)
The inflation rate in the country, can be seen to be nearly 3% in 2014. However, post 2014 the same can be see to have decreased considerably to 1% in end 2016, with a following increase in the last year. However, the rate is still at a moderate level near 2.1%. This in turn indicates that the increase in the consumption expenditure in the county may not have been due to increase in the inflation but may be due to the increase in the actual purchasing power if the overall population of the country, which is also asserted by the PPP adjusted per-capita GDP and its growth in Australia, in the last five years (Marston and McDonald 2013).
The economic welfare of the population of the country and the overall economic health of the country itself also depends on the level of job creation and employment generation in the country. This is because, with increase in employment generation, the economic abundance of a greater share of the population of the country increases, which in turn increases their aggregate demand which in its turn results in an increase in the aggregate supply, thereby increasing the overall productivity of in the country.
PPP Adjusted GDP Per Capita in Australia
Figure 6: Unemployment in Australia
(Source: Tradingeconomics.com 2018)
As is evident from the above figure, the rate of unemployment, which increased considerably from nearly 5.2% in 2012 to as high as 6.3% in the beginning of 2016, has fallen to a considerably low level of 5.6% in the last year, thereby indicating that new jobs are being created in the economy in the last few years (Marston and McDonald 2013). This to some extent may also explain the GDP traits of the country in the last five years, which showing considerable decline till 2016, started increasing visibly in 2017.
Much of the economic prosperity of Australia also depends on the amount of exports, imports and the trade balance of the country as a positive trade balance indicates towards income inflow in the country and vice-versa. Keeping this into consideration, the export growth in the country, in the concerned period can be seen as follows:
The export volume of the country can be seen to be showing a more or less positive trend in the last five years, with a significant increase in the last year.
However, as is evident from the above figure, the trade balance of the country has been mostly low and negative over the last five years, which in turn indicates that the import of the country is also high enough to sometimes even surpass the volume of exports (Plumb, Kent and Bishop 2013).
From the above discussion, it can thus be concluded that the economy of Australia has been experiencing mixed trends of growth, with impressive performance in the employment, consumption, purchasing power and inflation sector and to some extent disappointing performances in the trade sector. The GDP dynamics, however, show short term ups and downs which can be explained by the other economic indicators.
Much of the economic performance of Australia and the overall economic welfare of the residents in general, in the country, in spite of the negative performances in some aspects can be attributed to the robust and efficient policy framework of the government of the country. The primary components of this framework, which contributes towards the inherent stability of the economy of the country are as follows:
- Employment generation- The economic policy framework of the country has been pro-employment generation and the employment generation of the country has increased considerably in the last couple of years with nearly 300,000 jobs being created in the country in the last year itself, which to a considerable extent, explains the purchasing power as well as the consumption expenditure in the country (Lim, Chua and Nguyen 2013).
- Trade activities- Australia is a highly open economy and its economic policy framework supports trade and commerce activities highly. This in turn has helped the country to draw huge foreign investor’s attraction in terms of considerable Foreign Direct Inflow in the country, which can be seen as follows:
The inflow, although decreased considerably in 2015, however can be seen to be increasing considerably over the last couple of years, contributing to the increase in the GDP of the country in the last year. This in turn is one of the reasons behind the considerable increase in the economic prosperity and commercial aspects of the country.
- Protection of domestic industries- In spite of being a highly open economy and encouraging bilateral trade, the economic policy framework of Australia has provisions of protection and financial support to the small and medium businesses within the country, which in turn helps these businesses to face the stiff competitions from the cost efficient big foreign multinationals and to grow and make themselves sustainable (Lim, Chua and Nguyen 2013). This in turn also contributes in the economic growth of the country, which in spite of being considerably fluctuating in the recent years, is still comparatively higher than many other significant economies, which can be seen from the following figure:
- Stability- One of the major components of the policy framework of Australia is the inherent stability in the operational framework, which can be seen in the presence of stability stimuli in both the monetary and fiscal policies of the country. These have contributed significantly in keeping the economy afloat during immense crisis periods, which also include the Global Financial Crisis of 2007-2008, during which also the economy of Australia managed through sail through with not much lone term damage (Butlin 2013).
Consumption Expenditure and Inflation in Australia
One of the major contributors of the economic growth and prosperity of Australia, over the years, is the industrial sector of the country, which has developed significantly and impressively over the decades. However, in the last few years, there has been a major sectoral shift in the industrial pattern of the country (Lowe 2013). In the contemporary period, the manufacturing and agricultural sector, which used to be the predominant ones earlier, have been experiencing a considerable decrease in their size and dominance in the economy. The economy in turn is giving away to the growth of the service sector industries over the last few years.The service sector industries have been growing impressively and the resources getting allocated to this highly capital intensive and high-skilled sector, the other industries are seen to be shrinking. This is asserted by the patterns of jobs created in the economy in the last few years:
This in turn can be attributed to the growth of the skills of the workers over time and also to the increase in the capital formation in the country:
This in turn has facilitated the growth of the more lucrative and highly elite service sector industries, which primarily include education, health, construction, financial and commercial services (Herrendorf, Rogerson and Valentinyi 2014).
Conclusion
The economy of Australia, in the last five years, can be seen to be showing mixed performance in its different economic indicators but the overall welfare of the population of the country, in terms of purchasing power, economic abundance, employment and consumption patterns are seen to be increasing. The economic policies play a crucial role in the economic prosperity of the concerned country. However, the industrial sector, one of the primary contributors in the economic growth of the country, can be seen to be experiencing a shift towards the service sector industries and a simultaneous shrinkage of the manufacturing and agricultural sectors, which can be attributed to the capital formation and increase in the skills of a major share of the working population of the country over the years.
Reference List
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