Economic Growth of Australia
Discuss about the Department Of Industry Innovation And Economic.
Australia has recorded remarkable economic progress unmarred by recession for the past 25 years. This economic growth can be attributed to several factors. Foremost, the government of Australia has maintained an open economy characterized by least restrictions on imports. This means that the country has a broad market for its goods and natural resources such as gold, iron ore and liquefied natural gas. The country’s abundant natural resources have also attracted substantial foreign investments and are playing a crucial role in the economic growth and development. Besides, Australia has a well-organized government structure and a sound legal structure system. As a result, there is a favorable environment for the companies to carry out production. The services add the highest to the GDP, that is, approximately 70.3%. Agriculture and industry contribute 3.6% and 26.1% respectively (Central Intelligence Agency, 2017). The principal sectors in Australia include mining, information and communication technology, food processing, tourism, and finance. The food processing and tourism industries have significantly been boosted by the ‘dining boom’ among the country’s closest neighbors and the free trade agreements with countries like Japan, Korea, and China (Australian Trade and Investment Commission, 2017). This report explores Gross Domestic Product and Economic growth of Australia between 2013 and 2018.
On the figure one above, it is evident that Australia has registered remarkable economic progress in the past five years. Between 2013 and 2017, the annual growth in the Gross Domestic Product has been above 2%. The highest growth in Gross Domestic Product was recorded in 2016, that is, 2.77% while the lowest in 2017, that is, 2.1% (The World Bank, 2017).
In the past one decade, Australia has been encountering a remarkable increase in the housing industry. The demand for homes has been surging and thus providing numerous opportunities to residential property developers. Several factors have influenced the surging demand in this sector. Foremost, population increase in major Australian cities like Sydney and Melbourne has increased the demand for houses and hence increase in revenues for private property developers. The increase in demand has also resulted from income effects. For instance, a drop in the cost of borrowing for homes meant that Australians has sufficient funds to buy homes. Moreover, a general increase in the incomes of households in this country helped to drive the demand for dwelling up. The investor demand, especially from China, has also contributed to the high demand for houses (The Conversation, 2015).
Gross Domestic Product (GDP)
The consequence of the soaring demand has been an increase in employment creation as a result of the construction of new dwellings. Moreover, the earnings of property developers have increased significantly. The construction activity has also helped to generate revenue to the government from construction permits issued. On the graph two below, apart from March 2016 and September 2017, the prices of residential property in Australia have been increasing. For instance, in 2017 June, the prices of residential property increased by 4.7% and by 1% in 2017 December (The Australian Bureau of Statistics, 2017).
Export is one of the components of the Gross Domestic Product. Therefore, increase in this component will add to the Gross Domestic Product of a country. For the past five years, Australia has been recording an annual growth in the export of goods and services. On the graph three below, the export of products and services grew by 5.4% in 2013. In 2016, growth rose to 6.8% (The World Bank, 2017).
From graph four above, it is clear that the exportation of minerals significantly impacts the economic growth of Australia. During 2015-2016 trading period, the sale of minerals and fuel in the overseas market contributed approximately 41% to the Gross Domestic Product of Australia. During this period, the iron ore was the leading mineral export earner for Australia. The exportation of this resource earned the country nearly 47.8 billion Australian dollars. Gold and Liquefied Natural Gas (LNG) are also crucial to the economic growth of Australia. During 2015-2016 financial year, the revenues from gold increased by approximately 23% due to the high demand for this commodity in the international market. On the other hand, the increase in exploration and production of Liquefied Natural Gas contributed roughly 0.5% to the economic growth (Australian Trade and Investment Commission, 2017).
Household consumption expenditure entails expenses spend by resident households on services and goods (Sloman et al., 2015, p.58). In Australia, consumer spending has been increasing steadily in the past five years. For instance, in 2013, consumer spending contributed 54.7% to the Gross Domestic Product of Australia. In 2016, this percentage increased to 57.82% (The World Bank, 2017).
The Reserve Bank of Australia has played a crucial role in enhancing the consumption levels in the economy through the use of monetary policies. For example, this bank had been lowering the cash rate since the occurrence of the Great Depression in 2009. In 2015 the cash rate was 2%, and in 2016 it was cut to 1.5% (RESERVE BANK OF AUSTRALIA, 2017). This policy instrument has lowered the cost of borrowing and thus increasing the consumptions levels in the economy.
Factors behind Economic Growth in Australia
Increase in household consumption increases the aggregate demand of the economy. On graph seven below, the rise in Australia’s aggregate demand due to growth in consumption is demonstrated by the shift in the demand AD curve to the right. The change from AD0 to AD1 makes the real output to increase from Y to Y1 and the price from P to P1.
Inflation refers to the continuous rise in the general prices of commodities in an economy. The inflation levels play a critical role in determining the economic progress of a country (Sexton, 2015, p.53). In Australia, the Reserve Bank has been undertaking a recommendable role in maintaining desirable rates of inflation. Usually, an inflation level of approximately 2% is beneficial to the economy. From 2013 to date, the inflation levels in Australia have remained below 2.50%. The highest level was recorded in 2014, 2.49% and the lowest in 2016, 1.28% (The World Bank, 2017).
This moderately low and steady inflation has been essential to the economic growth of Australia (Australian Government, 2017). For instance, low inflation implies that even the Australians who get low wages and pensions have their buying power upheld if not improved. As a result, this desirable level of inflation has been crucial in enhancing the standards of living of low and mid-income groups in the community.
Besides, inflation is known to impact the level of interest rates in an economy. Usually, high level of inflation results in an increase in the interest rates due to a reduction in the purchasing power of money (McTaggart et al., 2015, p.37). Therefore, it can be argued that relatively low and stable inflation in Australia has contributed to the lowering of the cost of borrowing. Low cost of lending has had several implications for the economy of Australia. First and foremost, the consumers have increased their consumption and thus contributing to the economic growth of the country. Also, the businesses have been challenged to undertake investments to enhance their productivity to develop and remain viable in the market devoid of speculative business expansions.
Australia has been recording weak growth in the past one decade. For example, in 2016, the wage grew by 2.1% (Department of Industry, Innovation and Science, 2017). This was the lowest expansion in wages recorded in the past two decades. The slow growth in wages has been attributed to a decline in business confidence as well as drop in terms of trade. A weak increase in wages is detrimental to the economy of Australia because the households will reduce their purchasing power. With low consumption, businesses will reduce their investments and hence a decline in employment creation.
The Boom in the Housing Sector
Businesses investments help to create employment for residences in a country. Usually, when business investments are increasing, the level of job creation increases and hence a drop in the unemployment. However, businesses investments have been on the decline in the recent years. On figure nine above, it is evident that the level of investments in the mining sector is declining. Due to the importance of this sector in the Australian economy, total investments are also declining. The rate of increase in investment in services and construction is not sufficient to fill this gap. This is a significant blow to Australian economy since mining industry contributes approximately 41% to the Gross Domestic Product of the country (Australian Trade and Investment Commission, 2017).
Conclusion
Between 2013 and 2017, the yearly growth in the GDP of Australia has been above 2%. The highest growth was recorded in 2016, 2.77%, while the lowest in 2017, 2.1%. Several factors have facilitated this expansion in the economy. Foremost, in the past one decade, Australia has been encountering a remarkable growth in the housing industry. The demand for homes has been surging and thus providing numerous opportunities to residential property developers. This boom in the housing sector has also increased employment creation as a result of the construction of new dwellings. The growth in the economy has also resulted from the expansion in export earnings. The minerals contribute significantly to the income derived from exports. For example, during the 2015-2016 trading period, the sale of minerals and fuel in the overseas market contributed approximately 41% to the Gross Domestic Product of Australia. Furthermore, the Steady rise in the household consumption and moderately low and steady inflation are contributing to economic growth in Australia. Despite the remarkable growth in the economy, Australia is experiencing some headwinds. For example, Weak wage growth and falling business investments are obstacles to the economic growth of this country.
Reference list
Australian Government, 2017. Economic outlook. [Online] Available at: https://www.budget.gov.au/2017-18/content/bp1/download/bp1_bs2.pdf [Accessed 14th May 2018].
Australian Trade and Investment Commission, 2017. Economic analysis. [Online] Available at: https://www.austrade.gov.au/news/economic-analysis/australias-export-performance-in-2015-16 [Accessed 12th May 2018].
Central Intelligence Agency, 2017. Australia-Oceania : AUSTRALIA. [Online] Available at: https://www.cia.gov/library/publications/resources/the-world-factbook/geos/as.html [Accessed 14th May 2018].
Department of Industry, Innovation and Science, 2017. Economic conditions. [Online] Available at: https://www.industry.gov.au/Office-of-the-Chief-Economist/Publications/AustralianIndustryReport/assets/Australian-Industry-Report-2016-Chapter-2.pdf [Accessed 14th May 2018].
McTaggart, D., Findlay, C.C. & Parkin, M., 2015. Economics. Frenchs Forest, N.S.W: Pearson.
RESERVE BANK OF AUSTRALIA, 2017. Australian Economic Growth – The How, What and Where. [Online] Available at: https://www.rba.gov.au/speeches/2015/sp-ag-2015-03-11.html [Accessed 12th May 2018].
Sexton, R.L., 2015. Exploring economics. Boston, MA, USA : Cengage Learning.
Sloman, J., Wride, A. & Garratt, D., 2015. Economics. 9th ed. Harlow : Pearson.
The Australian Bureau of Statistics, 2017. Residential Property Price Indexes: Eight Capital Cities, Dec 2016. [Online] Available at: https://www.abs.gov.au/ausstats/[email protected]/Latestproducts/6416.0Main%20Features2Dec%202016?opendocument&tabname=Summary&prodno=6416.0&issue=Dec%202016&num=&view= [Accessed 13th May 2018].
The Conversation, 2015. Australia’s ‘five pillar economy’: mining. [Online] Available at: https://theconversation.com/australias-five-pillar-economy-mining-40701 [Accessed 13th May 2018].
The World Bank, 2017. Exports of goods and services (annual % growth): Australia. [Online] Available at: https://data.worldbank.org/indicator/NE.EXP.GNFS.KD.ZG?end=2016&locations=AU&start=2001 [Accessed 14th May 2018].
The World Bank, 2017. GDP growth (annual %): Australia. [Online] Available at: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2015&locations=AU&start=2012 [Accessed 13th May 2018].
The World Bank, 2017. Household final consumption expenditure, etc. (% of GDP): Australia. [Online] Available at: https://data.worldbank.org/indicator/NE.CON.PETC.ZS?end=2015&locations=AU&start=2007 [Accessed 13th May 2018].
The World Bank, 2017. Inflation, consumer prices (annual %): Australia. [Online] Available at: https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?end=2015&locations=AU&start=2006 [Accessed 14th May 2018].
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
