GDP and Economic Growth
Discuss about the Australia Economy Is Successfully Transitioning.
It is imperative to point out that the Australian economy has been experiencing continuous growth over the past two decades. Specifically, the country has been characterized by a sustained period of contained inflation rates, very low public debt, a strong financial system and reducing unemployment rates (Tang, 2017). This year, forecasts indicate that the economy may continue to experience growth but at a lower level that the previous years. Mainly, this is due to the fact Australia is facing a range of growth constraints this year. The growth constraints are particularly driven by the sharp decline in global prices from the country’s key export commodities. Nonetheless, the past five years have been characterized by sustained increases in the country’s GDP arising from the mining boom. The country also benefited significantly from the dramatic increases in its terms of trade over the years following increases in the global commodity prices for the country’s exports. At the moment, Australia is a big exporter of energy, agricultural products and natural resources. The country’s abundance and diversity of natural resources has attracted high levels of foreign investment on the mining sector. As such, the extensive reserves of iron, natural gas, coal, copper, uranium, and iron has brought the country a lot of revenue and contributed to the continued economic growth. Aside from that, the business confidence level and conditions in the country are high, boding well for non-mining investments in the economy. What is more, the country has is an open market economy with minimal restrictions on imports of services and goods. In turn, this has also contributed to the sustained growth over the past five years as it has helped increase productivity and flexibility of the economy. Therefore, a combination of these factors has greatly contributed to the sustained level and increases in the economic growth of the Australian economy over the last five years.
It is imperative to note that the Australian economy has been experiencing sustained economic growth over the past five years. Among developed economies, the country has experienced the longest period of uninterrupted economic growth (Perth, 2017). However, the level of GDP growth rate in the country has been rising and falling intermittently between the years while maintaining a high level of economic growth rate (Jericho 2014). Generally, these changes can be attributed to fluctuations in the economic environment and government policies of the country. Therefore, to establish the overall GDP and economic growth rate trend, this shall consider two GDP measures comprising of the GDP growth rate and GDP annual growth rate of Australia over the past five years.
GDP annual growth rate over the past 5 years
From the graph above, one note that that the GDP annual growth rate of Australia has been positive for the past five years. However, the percentage growth rate has been rising and dropping over this five year period. In 2013, the GDP annual growth rate was estimated at 2.3 percent in the second quarter before falling to 1.8 percent in the third quarter and then rising again (Australia GDP Annual, 2018). By the first quarter of 2014, the GDP annual growth rate in the country had increased to 2.5 percent. During this year, the rate continued to rise and reached 2.9 percent before falling back to 2.2 percent in the first quarter of 2015 (Australia GDP Annual, 2018). During the year 2015, the rate of annual GDP growth in Australia was rising and falling. The level first rose to 2.5 percent before falling back to 2.1 percent and then caught up and ascended to 2.7 percent in 2016 January (Australia GDP Annual, 2018).
In the first quarter of 2016, the GDP annual growth rate grew significantly and was estimated at 3.3 percent. Notably, this is the highest level of annual growth rate experienced in the country during this five year period (Australia GDP Annual, 2018). Afterwards, later in the year, the level of growth descended sharply to 2.1 percent before rising minutely to 2.5 percent in the first months of 2017 (Australia GDP Annual, 2018). However, the expansion in growth did not continue for long as the rate dropped again to 1.9 percent during the year and then rose sharply to 2.9 percent before descending again to 2.4 percent in the last quarter of 2017 (Australia GDP Annual, 2018). In January this year, the annual GDP growth rate of the country was estimated at 2.9 percent (Australia GDP Annual, 2018).
As at March this year, the growth rate had dropped slightly 2.4 percent (Australia GDP Annual, 2018).Therefore, all in all, the Australian economy has been experiencing a sustained period of annual GDP growth over the past five years. However, the degree of growth over this period has been rising and dropping between the years. It is imperative to point out that the Australian economy is dominated by the service industry (Australia GDP Annual, 2018). But, over the past few years, its economic success and growth has been based on the mining sector and agriculture.
Just like the GDP Annual growth rate, Australia’s GDP growth rate has also been rising and falling intermittently over the past five years.
Australia GDP Growth Rate
Looking at the graph above, one notes that the level og GDP growth in the country has been rising in some periods and falling in others. In 2013, the country’s GDP growth rate was estimated at 0.3 percent (Australia GDP Growth, 2018). During the year, the GDP growth rate in the country began to rise gradually and reached 0.8 percent at the beginning of 2014. Throughout 2014, the gross domestic product growth rate in the country declined gradually reaching 0.39 percent by the end of the year (Australia GDP Growth, 2018). In the year that followed, the GDP growth rate began to steeply rise reaching a high of 1.0 percent in the first quarter of 2015. Afterward, the rate of growth declined sharply to 0.2 percent in the second then rose to 1 percent again in the third quarter (Australia GDP Growth, 2018). By the end of the fourth quarter of GDP 2015, the GDP growth rate in the country had dropped to 0.5 percent (Australia GDP Growth, 2018). In 2016, the growth rate began to rise gradually and reached 1 percent by the end of the first quarter (Australia GDP Growth, 2018). The second and third quarter of this year were characterized by sharp declines in the country’s GDP growth rate reaching an all time low of -0.2 percent (Australia GDP Growth, 2018). Notably, this is the lowest rate of GDP growth experienced in the country over the five-year period. However, the slow growth rate did not persist for a long period as the level of growth rose sharply to 0.9 percent in 2017 (Australia GDP Growth, 2018). In January 2017, the growth rate was estimated at 0.9 percent but fell to 0.5 percent in the second quarter before rising again 0.6 percent in the third quarter (Australia GDP Growth, 2018). By the end of the year, the GDP growth rate of the country was at 0.4 percent, a slight drop from the previous quarter (Australia GDP Growth, 2018).
It is imperative to note that there are various reasons behind the sustained growth in the Australian economy. Let’s take the example of the last two quarters of 2017 (Australia GDP Growth, 2018). In the three months to September, the growth of non-dwelling construction, exports, household consumption and government spending in the country rose slightly, thereby contributing to a growth in the level of GDP in the country (Australia GDP Growth, 2018). Additionally, the level of final consumption in the country shot up by 0.2 percent, household spending by 0.1 percent, insurance and other financial services increased by 1.3 percent (Australia GDP Growth, 2018). Final government consumption grew by 0.2 percent. The exports of goods and services rose by 1.9 percent. On the other hand, the gross fixed capital formation in the country increased by 1.8 percent (Australia GDP Growth, 2018). Contrariwise, there were various decreases in sectors such as health at -1.0 percent, hotels cafes and restaurants at -0.9 percent (Australia GDP Growth, 2018). As a result, the decreases in growth in these sectors offset the overall GDP growth rate, thereby forcing it to decrease to the 0.6 percent recorded in the September quarter of 2017.
Reasons behind the sustained growth
Generally, one may argue that a combination of factors in the Australian economy has contributed to the level of growth experienced in the country. When taking into considerations the contribution of industries to the country’s GDP and economic growth, the mining industry contributes significantly (Australia GDP Growth, 2018). Last year, the mining industry rose by 1.1 percent following a growth in iron ore mining by 2.9 percent and other forms of mining by 2.8 percent (Australia GDP Growth, 2018). On the other hand, the contribution of the manufacturing industry shot up by 1.5 percent. The construction industry rose by 0.6 percent. Mainly, this rise was driven by an increase in civil and heavy engineering by 3.9 percent (Australia GDP Growth, 2018). Likewise, retail trade rose by 0.1 percent following an increase in food retailing in the country. Thus, a combination of these factors brought about the increase in GDP growth rate in the country.
Apart from the contribution of the individual industries to the economy, the government of Australia has also instigated various policies and measures in the country to stimulate the level of economic activity in the country. Mainly, these policies comprise of both demand side and supply side policies. The demand policies in the country aim at boosting the overall aggregate demand in the country. These policies comprise of expansionary monetary and fiscal policies (Argawal, 2017). When the Australian government anticipates a decline in the level of economic activity in the country, it initiates monetary policies such as a reduction in the level of interest rates to encourage borrowing. As such, when the interest rate regime in the country is low, the cost of borrowing loans also drops. Thus, individuals and firms are able to obtain loan services from the bank for purposes of household consumption and investment. With regard to household, an increase access to the loans helps them increase their consumption of goods and services in the economy. In turn, this brings about an increase in the aggregate demand of the economy. In the same way, the business community is able to obtain loans for investments. An increase in the investment level in the country goes a long way in boosting the overall GDP of the economy, thereby enhancing economic growth.
In addition to monetary policies, the Australian government uses fiscal policies to enhance the level of economic activities in the country. To boost GDP growth, the government uses expansionary fiscal policies such as cut taxes and increased government spending. It is imperative to note that when the income tax rate is reduced, the disposable income available to households also increases. In turn, households have more money to spend on buying goods and services in the economy. In turn, this leads to an increase in the country’s aggregate demand. In the same way, the government increases its expenditure on infrastructure and other developments and projects. In turn, this leads to an increase in the country’s GDP as such projects often result in an increase in employment opportunities, ease of business and enhanced business activity. Therefore, these policies bring about an increase in the country’s GDP and hence contribute to the overall growth of the economy.
In addition to demand side policies, the Australian government utilizes supply side policies to increase the overall productivity of firms and industries in the country as well as raise trading activities. In turn, this brings about sustained increases in the overall growth in the GDP of the economy. Mainly, these policies comprise of entering into trade agreements, improving education and training, and deregulating labor markets. Firstly, the Australian government has signed free trade agreements with various countries as a means of improving trade and economic activities between the countries. For instance, Australia has a free trade agreement with countries such as New Zealand, China, Chile, Thailand, Singapore and many others (Australia’s FTAs, n.d.). These agreements facilitate frictionless trade between Australia and member economies, thereby enhancing level of trade and increasing imports and exports. Additionally, the government has set up training facilities across the country to enhance the skills of the workforce to match the requirements of the labor market (Bailey, 2016). In turn, this allows a match between the demand of labour and supply of labour in the country. Consequently, this boosts the productivity of firms, and eventually the country’s GDP.
Conclusion
All in all, all factors taken into consideration, the Australian economy has been experiencing sustained economic growth over the past five years. Over the last five years, the country has been experiencing continued growth rate in its Gross Domestic Product, making Australia the only country among developed nations to experience uninterrupted growth rates over the five year period. As such, the economy has enjoyed a continued period of low inflation, low public debt and high investments. Mainly, this was brought about by growth in industries such as mining, agriculture, manifesting as well as the service industry. Aside from that, the Australian government takes an active role in the economy by implementing policies that aim at stimulating growth and development in the economy. Such policies often comprise of expansionary fiscal and monetary policies. Particularly, the government adjusts the level of interest rates, tax charges and government spending to boost the economy’s aggregate demand. Aside from that the government uses trade agreements and enhanced training of the workforce to increase trade activities and productivity of firms within the economy. All factors taken into consideration, the Australian economy has great potential and prospects, and the economic growth is expected to continue in the near future.
Reference List
Argawal, P. (2017). Supply side policies. [Online] Intelligent Economist. Available at: https://www.intelligenteconomist.com/supply-side-policies/ [Accessed 4 May. 2018].
Australia GDP Annual Growth Rate (2018). [Online] Trading Economics. Available at: https://tradingeconomics.com/australia/gdp-growth-annual [Accessed 4 May. 2018].
Australia GDP Growth Rate (2018). [Online] Trading Economics. Available at: https://tradingeconomics.com/australia/gdp-growth [Accessed 4 May. 2018].
Australia’s economy is successfully transitioning (2017). [Online] Budget 2016-17. Available at: https://www.budget.gov.au/2016-17/content/glossies/jobs-growth/html/ [Accessed 4 May. 2018].
Bailey, M. N. (2016). Policies to enhance Australia’s growth: A U.S. Perspective [Online] Brookings. Available at: https://www.brookings.edu/research/policies-to-enhance-australias-growth-a-us-perspective/ [Accessed 4 May. 2018].
Jericho, G. (2015). Australia’s dreadful GDP figures – six things you need to know. [Online] The Guardian. Available at: https://www.theguardian.com/business/grogonomics/2014/dec/04/australias-dreadful-gdp-figures-six-things-you-need-to-know [Accessed 4 May. 2018].
Jericho, G. (2015). Australia’s GDP has risen again – here are six things you need to know. [Online] The Guardian. Available at: https://www.theguardian.com/business/grogonomics/2014/sep/05/australias-gdp-risen-six-things [Accessed 4 May. 2018].
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