HC1072 Economics and International Trade: Growth of Australia

Introduction 

Australia has over the decades, developed significantly in all the sectors, thereby emerging as not only one of the most developed countries across the globe but also one of the most influencing economies in the global framework. The economy of the concerned country has gradually developed and prospered significantly with time, much of which can be attributed to both the developments intrinsic to the country like that of industrial development and trade liberalization and expansion as well as the exogenous factors like that of Globalization, international trade openness, technological and infrastructural developments and so on (McLean 2012).

Much of the prosperity of the economy of Australia can be attributed to industrial and commercial development of the country which took place impressively and significantly over the decades. Australia over the emerged not only as one of the manufacturing giants in the international framework but also as one of the leading countries in terms of mining, residential and construction sectors (Banerjee 2012). This economic prosperity of the country has also over the years attracted huge number of people from all parts of the globe, who have migrated to the country from all parts of the world, mainly in search of better jobs, higher income prospects and an overall higher standard of living. Apart from prosperity and an overall higher economic health of the country, which can be seen from the performance of most of the economic indicators of the same, the economy of Australia is well known for its inherent stability mechanisms (Gould 2013).

However, the economic patterns of the country have not always been smooth and the country experiences a fair share of economic fluctuations, especially in the last few years, the same having both positive as well as negative impacts on the country and on its population as a whole. Keeping this into account, the concerned report tries to analyse and discuss the dynamics and growth of the GDP of the country as well as dynamics in the overall economic growth patterns of the concerned country over the last few years, thereby discussing the economic policies present in this aspect and their implications. The report also tries to discuss the dynamics and shifts in the industrial sectors of the country during this concerned period.

Australia: Economic Overview 

Before analysing the overall economic growth trends of the country, it is of considerable significance to study the overall economic profile of Australia which the country has maintained over the years. Being one of the most developed and influencing economies in the global scenario, as discussed above, the country ranks fourth globally in terms of Nominal GDP and also ranks second in terms of wealth per adult person in the population. The country has over the years, experienced massive booms in its mining, residential, technological and manufacturing sectors, which in turn has contributed to its economic prosperity and a higher than average living standard for most of the residents of Australia (Groenewegen and McFarlane 2014). Behind the economic and overall progress and stability of the country lies the impressive policy frameworks and efficient government structure of the country. Keeping this into consideration, the economy of Australia, in the last five years, is studied in the following sections.

Australian Economy in last five years 

The otherwise stable economy of Australia has however been subjected to considerable fluctuations and dynamics over the last five years, the reasons including both endogenous as well as exogenous factors. These fluctuations and growth trends can be seen from the traits of growth of the different macroeconomic factors, the primary one of which is the Gross Domestic Product of the country within the specified time period.

GDP and its growth trends in the last five years 

The Gross Domestic Product of a country, in the sense of the term itself, shows the total value of the commodities and services, which are produced within the geographical domain of the concerned country within a particular period of time, usually one economic year. Thus, the GDP and its dynamics in a country shows the overall economic productivity and economic health and welfare of the same over the years (Agénor and Montiel 2015). Keeping this into account, the GDP of Australia and its dynamics over the last five years can be seen from the figure below:

Figure 1: GDP of Australia in the last five years

(Source: Tradingeconomics.com 2018)

As is evident from the above figure, the GDP of Australia, which increased minimally from 2012 to 2013, has however decreased post 2013 till 2016, from 1567 billion USD to 1204 billion USD. The GDP of the country however, rose to some extent in 2017 (1690 billion AUD), which in turn shows signs of recovery of the (McLachlan 2013). These trends in the GDP of the country can however be more clearly observed by studying the dynamics of the GDP growth rate of the same in the concerned period.

Figure 2: GDP growth rate of Australia in the last five years

(Source: Tradingeconomics.com 2018)

The GDP growth rate of the country can be seen to be experiencing huge fluctuations, both positive as well as negative, with the magnitude of the same increasing especially in the last two or three years. The growth rate can be seen to be reaching the lowest (-0.4%) in 2016 and quickly recovering to more than 1% after that which may to some extent explain the sudden rise in the GDP in 2017, after three successive years of decline.

To gauge the economic welfare of the population of the country it is better to consider the dynamics of the per-capita GDP of the country as GDP growth as a whole does not consider the aspects of distribution of the fruits of economic growth to the population. In case of per capita GDP also, just considering the money value of the same may be a biased way of judging the economic welfare of the residents due to the presence of the aspects of inflation and disparities in money values (Agénor and Montiel 2015). Thus, considering the purchasing power parity adjusted per-capita GDP can help in measuring the actual growth in the real purchasing powers and economic well-being of the resident of the country to a considerable extent.

Figure 3: PPP Adjusted Per-capita GDP of Australia in the last five years

(Source: Tradingeconomics.com 2018)

As can be seen from the above figure, surprisingly and contradicting the GDP dynamics in the country in the last five years, the PPP Adjusted per-capita GDP of the country has been impressively and steadily growing and the magnitude of the growth can also be seen to be increasing with time, which in turn indicates towards and increasing purchasing power and an overall raised economic abundance for the overall population of the country in spite of a less than impressive performance of the GDP dynamics in the country in the last five years.

Economic growth of Australia in the last five years 

The GDP and the growth rate of its components, in a country, in spite of being considerably important indicators of the economic conditions of the country, cannot however, fully explain the economic growth dynamics of the same as there are many other significant indicators of growth of the economy of a country, which shows the performance of the economy in different aspects (Kumar, Webber and Perry 2012). Keeping this into consideration, the overall economic growth of Australia, in the last five years, is discussed in the following section, with the help of the trends observed in the other significant macroeconomic indicators.

Inflation in Australia in the last five years 

One of the most significant macroeconomic indicators of wellbeing of an economy, after that of GDP is the rate of inflation prevalent in a country, which in turn shows the movement of the average price levels of goods and services in the country over time, thereby highlighting the economic welfare of the residents in terms of their purchasing power and demand conditions. While a very high inflation decreases the economic welfare of the population tremendously, a very low inflation leads to decrease in production thereby leading to recessionary conditions in an economy (Heijdra 2017).

Figure 4: Inflation in Australia in the last five years

(Source: Tradingeconomics.com 2018)

The rate of inflation in Australia, which can be seen to be at 3% in 2014, has however, declined to a considerable extent (1.6%) in 2016, thereby increasing to 2.1% in the recent period (Willard 2012). However, the fluctuations and dynamics in the inflation rate of the country can be seen to be within a moderate range of 1% to 3% within the concerned period, which in turn indicates towards a stable economic health of the country where the population is not over-burdened with very high prices or lack of productivity.

Unemployment in Australia in the last five years 

Another aspect of economic growth in any country over time is the scenario in the labour market and the level of employment and job creation in the country over that specific period of time, as much of the economic welfare, ability to spend and overall life style of the population of the country depends upon the ability of the economy to generate effective employment scopes for the population of the country, which in turn increases the aggregate demand, thereby increasing the productivity of the country (Gregory and Smith 2016).

Figure 5: Australian unemployment rate in the last five years

(Source: Tradingeconomics.com 2018)

The rate of unemployment in Australia, which remained at 5.2% in 2012, however increased considerably to 6.2% in 2015. However, in the last couple of years, the unemployment rate of the country can be seen to be declining to some extent and settling within the range of 5.5% to 5.7%. This in turn indicates towards the fact in the last couple of years, employment scopes have been generated in the economy (Kumar, Webber and Perry 2012). This is supported by the evidence of creation of nearly 300,000 jobs in the country in 2017 itself. This in turn also explains the increase in the PPP adjusted per-capita GDP of the country in the concerned period.

Consumption expenditure in Australia in the last five years 

The economic welfare of the population of the country can also be considerably gauged by observing the trends in the patterns and expenditures in consumption over a period of time. Consumption expenditure also acts as an indicator of growth of demand in the country which in turn affects the total productivity and economic growth of the same.

Figure 6: Consumption expenditure of Australia in the last five years

(Source: Tradingeconomics.com 2018)

The consumption expenditure of the country can be seen to be steadily increasing in Australia with the indicator showing a steady and almost linear increasing over the last five years. This increase can however be due to increase in the actual economic well-being of the population of the country or due to an increase in the price level in the country (Asumadu-Sarkodie and Owusu (2016). But given the fact that the inflation rate of Australia, over the last five years, has been stable at a moderate level and that the employment generation in the country has also been increasing, this highly impressive growth in the consumption expenditure of Australia can be attributed to the real increase in economic welfare of the population of the same.

Growth of trade in Australia in the last five years 

Another aspect of the economic growth of any country is the growth of trade and commercial activities of the same with time as the same is connected to income inflow and outflow as well as growth of industries, employment and overall economic welfare of its residents. In this context, Australia, over the last five years, can be seen to experience considerable dynamics in its total export volumes:

Figure 7: Total exports of Australia in the last five years

(Source: Tradingeconomics.com 2018)

The export volume of the country, staying considerably moderate till 2016, can be seen to be increasing impressively in the last year, which can to some extent, explain the sudden increase in the otherwise falling trends of GDP in the country.

Figure 8: Australian trade balance over the last five years

(Source: Tradingeconomics.com 2018)

The trade balance of the country has however, mostly remained negative in spite of Australia being the 23^rd largest country in exports. This can be attributed to more than proportionate imports in the country over the years. The trade balance has however seen some positive trends in the last year due to increase in the export volumes (McCombie and Thirlwall 2016).

Thus, from the above discussion, it is evident that the economy of the concerned country has been subjected to considerable dynamics in every aspect of its growth parameters and have mostly performed positively in all the aspects, barring the GDP dynamics as a whole, which also can be seen to be showing positive trends in the last year. Together all these indicators highlight the overall growing health of the economy of Australia.

Policy Structure 

The economic growth of Australia over the years, can be attributed to the robust and effective economic policy structure present in the country over the years, the primary components of the same being as follows:

• Australian economic policy framework is a pro-employment generation one and has over the years concentrated in creating new employment scopes foe the increasing population of the country to keep the economic growth trends persistent in the country. The government of Australia, in the last year only, created 300,000 jobs for the residents of the country. This is one of the primary reasons behind the overall economic well-being of the residents of the country (Gregory and Smith 2016).
• Australian economic policies have over the years encouraged industrial and commercial growth and has been open to foreign investments as well as immigration of employees. The government attracts foreign investors through lucrative tax cuts and offers, which in turn has also led to the inflow of huge amount of FDIs in the country, thereby contributing to its economic growth.
• One of the major components of the policy stricture of the economy is the aspect of stability. The fiscal and monetary stability stimuli have helped the economy to maintain its persistent growth even in periods of crisis like Global Financial Crisis of 2008 and even if the economy growth declined during the same, it was seen to be recovering abruptly owing to the stability in the economic policy framework of the country as a whole.
• The monetary policies of Australia also follow an inflation targeting system, where a target level of inflation is set and then the policies and cash rates are designed and implemented in such a way that the target is achieved within a stipulated time (Willard 2012). This can be seen to be effective for the economy as is suggested by the stable and moderate level of inflation prevailing in the economy over the last five years.

Growth of industries in the last five years 

The economy of Australia has always been known for its robust and highly efficient industrial structure with the manufacturing industries ruling in this domain. However, over the last few years, the Australian economy has been experiencing a paradigm shift in its industrial sector with the manufacturing sector shrinking and the service sector of the country expanding extensively.

Figure 9: Number of new jobs created in different sectors of Australia in 2017

(Source: Budget.gov.au 2018)

As is evident from the above figure, in the recent years, the service sectors, especially those like professional, educational, financial, business and household services, have been growing massively while the manufacturing, mining and construction sectors have been losing their size and dominance, in terms of job creation, revenue generation and overall activities (Morris, Kaplinsky and Kaplan 2012).

Reasons behind growth of service sector industries in Australia 

The growth of the service sector industries in the recent years, in Australia, has been primarily facilitated by the huge growth in the capital formation and investment in the country, from both within the country itself as well as from foreign investors from all parts of the world. The service sector industries are highly capital-intensive industries and also require high skilled workers for its expansion and Australia, in the current period, has both of these components, which in turn have led to the industrial shift in the country in the contemporary period (Hakansson 2015). However, this shift has led to the decline of the basic manufacturing industries as well as the agricultural sector of the country, as can be seen by the extent of jobs lost in these sectors.

Conclusion 

Australia, as can be seen from the above discussion, has been one of the most dominant economy of the globe and the country has, over the last five years, managed to maintain an overall positive economic growth trend, in spite of unimpressive traits in some of its economic indicators. Much of this can be attributed to the stable and dynamic pro-growth policy structure of the country, which also has inherent stability components. However, in the last few years, significant sectoral shift can be seen to be occurring in the industrial aspects of the country, with a huge increase in the growth of the service sector industries and a simultaneous decrease in the manufacturing industries and also in the agricultural sector of Australia.

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