ECO101 Principles of Economics- Growth Rates Over the Period

3. What are the major challenges it faces in enhancing their growth rates.

Answers

Growth rates over the period of last ten years

Australia, a developed economy. Australia is the largest mixed market economies has a GDP of AUD$1.69 trillion as of 2017.  In terms of wealth per adult, wealthiest nation after Switzerland is Australia. As of June 2016, the total wealth of Australia was AUD$8.9 trillion. Australia, by nominal GDP, was the 14th largest national economy, by PPP-adjusted GDP it had 20th largest position, as good exporter it was 25th-largest and as good importer it was 25th-largest.

In the financial quarter of March 2017, the 103rd quarter and 26 years in the developed world the record of the longest run of uninterrupted GDP growth was taken by Australia since it had two consecutive quarters of negative growth or technical recession (Hatfield-Dodds and et al. 2015).

                                                                            Figure 1: Australian GDP rate over past ten years

Mining investment boom generated massive revenue and income benefits which have made the economic performance of Australia strongest in the OECD over the last10 years. Now, there is a need to create new growth sources because the economy is facing new challenges with the recession in mining (Shahiduzzaman & Alam, 2014). Australian industries need to manage this transition to thrive in businesses by keeping a check on cost pressures and also improve their productivity.

They are moving towards a more export and services- oriented economy. The falling Australian dollar is supporting the exports and the mining sector’s greater production capacity. In addition to that educational attainment and progress in the technology are benefiting the services. A vibrant and a modern economy is the next step of transition in which economic reform will play an important role. Second

GDP of Australia is a most significant measure to consider the performance of the economy of Australia. The ABS (Australian Bureau of Statistics) issued figures of GDP on the basis of yearly and quarterly. The table presents the adjusted price of GDP of Australia, classically defined to an economic growth rate of Australia.  A completed a yet understandable assessment of Australian GDP is enumerated as below:

Analysis of reasons of variation in growth rate

The key drivers of growth rate

Increasing demand for raw materials from developing countries in early 2000, this resulted in a strong increase in the worldwide price of commodities and played a vital role economy of Australia. Moreover, high trading that leads to a considerable increase in the purchasing capacity of domestic, increase in prices of commodity caused a spark in the investment of mining, especially in iron and coal (GDP in Australia, 2017). Thus, mining investments are one of the key drivers of Australia’s growth in the last ten years. The economy of Australia is changing from mining investment phase boom to the productivity phase.

                                                                          Figure 2: Performance of various sectors in GDP.

Development of the production capability of iron and coal had a solid positive impact on the exports of Australia to the Asian market. The mining division, along with the financial sector and any other lined specialized and technical services have noticeably improved in significance in Australia’s GDP in the last ten years. However, manufacturing productivity seemed gradually shrinking (Australian GDP Growth Rate, 2017). Consequently, about three-quarters of the economy currently engages production and mining of services instead of goods, together with the financial sector substituting manufacturing which is the single industry occupying largest share in the economy. 

Reason for difference in growth rate

Increase in household spending

In December, the 0.6 percent growth in GDP, household spending taken into account greater than three-quarter with the 0.4 percent point. Householder’s spending more than expected made up tine drops of investment in the sector of mining or any other industry. The domestic increase also assisted in the keeping the economy runs slowing in neutral. During 2015, construction of private dwelling gave 0.49% points to the growth of GDP. However, the growth in the housing and apartment building is not sufficient to offset the fall, as construction of non-dwelling decreased GDP growth during 2015 by the point of 1.1%

Growth in net exports

Australian export growth became poorer that had to be likely to be in the last ten years all around these main categories which are services, rural resources and manufactures. Whereas huge exports of commodities and LNG (liquefied natural gas) rise highly with regards to high demand from Asian markets (Fleming & Measham, 2015). This was partially balanced by declining oil and metal exports. Exports of non-resources were adversely impacted by exchange rate appreciation and constant increase in the share of worldwide productivity, taking place in developing countries. Looking forward to, the growth in mining based investment in mid 2000 is likely to give rise to strong growth in exports of resource in the next 5 years. Income growing faster in emerging Asia needs for exports of Australia of food commodities, expertise producers and services are also predicted to rise. Increasing income in up-and-coming Asia also produces a rapid increase in demand for the non-resource exports of Australia.

With regards to the growth in Chinese demand regarding resources and prices of export considerably increased, while improving the exporter’s profitability of Australia. However, the additional exchange rate appreciation has put sliding force on the prices of non-resource export regarding the household cost suffering (Grafton & Lambie, 2014). This is apparent for the produced export prices with fall in global prices particularly for high technological electronic commodities and contribution as well.

In seasonal terms, in December, imports raise by 0.6% in further the net exports growth (deduct export from import) was in effect nil, and thus they made no addition to growth. But comparing to the trend term figures things seems to be different. The chief contributor was net exports a for the growth in trend term in the quarter period of December- making the addition of 0.45% points in the overall .7 % increase in GDP.

By considering the variable nature of exports, the best way is not to give attention on the seasonal term adjusted-data rather give more focus on trend term. More satisfactory, just keep aside the quarterly growths rather focus on annual growth. Further, it can be concluded that net export is providing an appropriate contribution in annual growth rate.

Collapse of investment in mining sector

The investment failure in the mining sector continued to check the demand and need in the Western Australia completely crashed down. During the trend terms, last demand in Western Australia currently fall down two years or more than that and will be reversed as it was in 2011 September. Further, the export phase of mining sector continues to be booming its variable yet considerable contribution the economy of Australia.

Mining export of Australia global price was thrice over the ten years to 2012, mining sector’s investment spending increased from 2% to 8% of GDP. The mining boom shows gave a major blow to the economy of Australia.  In this article, it is all about the estimate of its consequences, by making use of a macro-econometric model of economy of Australia. It reviews the total research paper that is inclusive of additional discussions and facts of the effect. The model measures and recommends that mining boom developed the living standards considerably in Australia (Downes, Hanslow, & Tulip, 2014). By 2013, the mining boom is predicted to increase the actual per capita domestic disposable income by about 13%, increased actual wages by 6% and reduced the rate of unemployment by approx 1¼% point. Although, not every element of the economy was appeared as beneficial. This boom resulted in a big appreciation of Australia’s dollar, which was evaluated on several other sectors available to trade like producing and agriculture.

This boom is summarised as a convergence several events which ultimately improved commodity prices of mineral, resources manufacture and mining investment. This merge of changes has improved purchasing capacity and Australian output quantity (Fleming & Measham, 2015). Consequently, there were immense changes in specified rates, markedly on exchange rate appreciation. 

The merge of shocks in the manufacture, investment, income and relative price became an immense change in the dynamics of economic activity. At the same time, it boomed construction, importing and mining.

Challenges faces in enhancing their growth rate

Low-wage growth

The penalty rate decision has been explained as a cut in pay which will decrease the living standard for "millions" of Australians and has been seized by labour. “People who work in retail and hospitality and pharmacy and fast food will get a wage cut”, said Opposition Leader Bill Shorten (Bouis, Christensen & Cournède, 2013).

“Pay packet has no increase in wages in any other part”.

The announcement of plans for the introduction of legislation to prevent the commission's decision from taking effect has been made by the Labour's shadow employment minister Brendan O 'Connor. In terms of wage growth, Australians were struggling to make ends meet, and some were also going backwards.

Australia’s growing population

Currently, population growth in Australia is predictable to have increase from 22 million presently to 35.9 million by 2050.42, but it is slowing down. In this aspect; net overseas migration and natural increase (the fertility rate exceeding the mortality rate) are the two factors attributing to growth. Public policy for future faces significant challenges (Cingano, 2014). As the Treasury commented: a range of questions have to be thought of like impact on urban infrastructure and also about the way services government delivers. The quality of the policy settings which are in place and the quality of the policy decisions already taken, along with numerous of those taken today will critically decide the answer to those questions.

Productivity Challenge

Now, the need is to understand, mainly by those who are in public sector that available resources are restricted and will substantiate progressively so over time, operating should be as efficient in best possible manner without under-providing goods of public. In addition to that, major productivity challenge and further pressure on infrastructure are placed by the population growth in cities (Baker, Bloom, & Davis, 2013). Further urban congestion issues are contributed by the populations is approx. 7 million in Sydney and Melbourne, Brisbane and Perth. In these cities; figure of population has been twice in comparison to current levels. The social cost of the avoidable smaller working population has been estimated by the Bureau of Infrastructure, Transport and Regional Economics.  Particular groups are participating in the workforce it is critical that opportunities are maximised with a smaller working population. Professor John Quiggin commented this considered as one of the most prolific contribution towards the society, as with this workforce as well as out of it to provide people with the kinds of flexibility and enable them.

Issues in education and healthcare sector

Person’s quality of life, as well as participation in the workforce, is affected by health condition according to ACCI. An additional schooling year can upsurge the rate of workforce participation by around 0.5 percent for men and 4 percent for women. This was noted by ACCI PC modelling on education. It is because adverse health conditions of individuals affects their capacity to work, participation rates can be improved by a high-quality healthcare system (Ahmed & Zlate, 2014).  As per ACCI, more people are in the workforce if the population is healthier and less number of people rely on government benefits. If the barriers to the women participation are removed in the workforce, it will improve productivity meeting underlying social goals.

In this aspect; the challenges that country face in levels of participation with an ageing population, to make sure that investment by public is in the skills of a big section of workforce (Bishop and et al. 2013). Participation of groups in the community is continued if the workforce arrangements are flexible. These arrangements are inclusive of part-time work, working from home. They might otherwise leave the workforce if arrangements are not flexible.

References

Books and Journal

Ahmed, S., & Zlate, A. (2014). Capital flows to emerging market economies: A brave new world?. Journal of International Money and Finance, 48, 221-248.

Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring economic policy uncertainty. The Quarterly Journal of Economics, 131(4), 1593-1636.

Bishop, J., Kent, C., Plumb, M. and Rayner, V., 2013. The resources boom and the Australian economy: a sectoral analysis. RBA Bulletin, pp.39-50.

Bouis, R., Christensen, A. K., & Cournède, B. (2013). Deleveraging: Challenges, progress and policies.

Cingano, F. (2014). Trends in income inequality and its impact on economic growth.

Downes, P. M., Hanslow, K., & Tulip, P. (2014). The effect of the mining boom on the Australian economy.

Fleming, D. A., & Measham, T. G. (2015). Local economic impacts of an unconventional energy boom: the coal seam gas industry in Australia. Australian Journal of Agricultural and Resource Economics, 59(1), 78-94.

Fleming, D. A., & Measham, T. G. (2015). Local economic impacts of an unconventional energy boom: the coal seam gas industry in Australia. Australian Journal of Agricultural and Resource Economics, 59(1), 78-94.

Grafton, R. Q., & Lambie, N. R. (2014). Australia's liquefied natural gas sector: Past developments, current challenges and ways forward. Australian Economic Review, 47(4), 509-522.

Hatfield-Dodds, S., Schandl, H., Adams, P. D., Baynes, T. M., Brinsmead, T. S., Bryan, B. A., ... & McCallum, R. (2015). Australia is' free to choose'economic growth and falling environmental pressures. Nature, 527(7576), 49.

Shahiduzzaman, M., & Alam, K. (2014). Information technology and its changing roles to economic growth and productivity in Australia. Telecommunications Policy, 38(2), 125-135.

Online

Australian GDP Growth Rate. (2017). [Online]. Available on < https://tradingeconomics.com/australia/gdp-growth>. [Accessed on 22^nd September 2017]

GDP in Australia. (2017). [Online]. Available on < https://www.focus-economics.com/country-indicator/australia/gdp>. [Accessed on 22^nd September 2017]