Australia Breaks World Economic Growth Record

Economic performances of Australia

Discuss About The Australia Break World Economic Growth Record?

Australia is world’s one of the most developed economies. It is also world’s one of the biggest mixed market economies. Australia ranks second among the most wealthiest nations of the world in terms of wealth per capita, preceded by only Switzerland. In June 2016, total wealth of Australia was AUD 8.9 trillion. The country became 12^th among the largest economies of the world as per nominal GDP and 19^th as per PPP adjusted GDP in 2016. The GDP of Australia was 1.205 trillion USD or 1.69 trillion AUD in 2016. The GDP per capita was $51,850 in nominal terms in 2016, which is a very high figure. It has faced an inflation rate of 1.9% in June 2017, and the rate of unemployment is 5.6% in August 2017 (Austrade.gov.au 2017).

Australia has the record of having uninterrupted economic growth for almost twenty years. No other developed country has this long period of growth. The country has not witnessed any technical recession in the past 26 years. Economic performance of the country has been extremely well in Australia. The global financial crisis of 2007-08 could not affect Australia as much it hit other economies. The major sectors of the economy are services, construction, mining, manufacturing and agriculture. The service sector contributes maximum in the GDP of Australia. 2009-10 saw the mining boom in Australia. Although the growth of the mining sector has declined, still the economy remained stable and resilient and as not faced any recession since 1991. The country ranks 25^th in exporting and 20^th in importing of goods and services. It also entered in Free Trade Agreement with China, Japan, and Korea, which has helped the country to grow its production immensely in the past decade (industry.gov.au 2015). The following essay focuses on the GDP and economic growth of Australia in the last few years.

It has been a great achievement for Australians that a generation of the country has not experienced recession while growing up. There is huge prosperity in the country. Level of unemployment has been low and stable and inflation rate has been low in the past few decades. The country is rich in natural resources. Hence, the mining sector was developed tremendously. The mining sector has generated the maximum employment in the country. However, the non-resource sectors started to develop in the 2000s and the focus has shifted to these sectors. Globalization and economic liberalization have contributed to make the economy open (Battellino 2013).

Flexibility and Resiliency

Figure 1: Real GDP of Australia, 2005-2015

(Source: World Bank 2017)

GDP refers to the Gross Domestic Product, which is the total value of the goods and services produced within the geographical border of a nation, in a given time period, say, one financial year (Mankiw 2014). GDP is of two types: nominal and real. Nominal GDP refers to the value of the goods and services at current prices. On the other hand, real GDP is the inflation adjusted value of production. It is obtained by discounting the nominal GDP by GDP deflator of that year (Ghysels 2016). This, nominal GDP is always higher than real GDP. Figure 1 depicts the real GDP of Australia from 2005 to 2015. From the data of the World Bank, it can be seen that in the last 10 years, the real GDP of Australia has grown significantly. In 2013, it reached a peak at 15.79 billion USD. The trend line for the GDP is rising.

GDP is one of the fundamental elements, which is used to management the economic health of a nation. The level of production of the economy determines how fast it is progressing. There are two ways to measure GDP. One is income approach and the other is expenditure approach. In income approach, the earning of people and firms are added up, and in the expenditure method, the amount of spending of people and firms are added up. The total consumption, government spending, net exports and investment are added up to find out the GDP of a country. Hence, in a healthy economy, the unemployment level is lower, there is higher demand for products, thus labor demand increases, wage increases and economy expand. A considerable change in the GDP is reflected in the stock market movement. In a bad economy, the companies earn less money, and thus, the stock prices are reduced. People get less money and therefore, aggregate demand in the economy falls. Hence, production level falls and economy contracts. This represents negative growth or recession (Rezai and Stagl 2016).

1991 onwards Australia has faced the longest run of growth. The average growth rate per annum is 3.2% (Skynews.com 2017). It is the only country among the other developed nations which has seen the growth for such a long time. Recession is defined by the concept of two successive quarters having negative economic growth. Australia has never faced two consecutive quarters of negative growth since 1991 and hence, the longest run of economic growth has been achieved by the country. The Global Financial Crisis of 2008 was a major event that shook the international economy during this last 10 years. All the major countries were hit hard but not Australia (Adema, Fron and Ladaique 2014).

Factors Contributing to Economic Success

The impressive performance of Australia in the last two and half decades is majorly credited to a variety of elements, such as, economical reforms, strong population growth due to migration and strategic geographical region. According to a report of RBA, parts of the growth can be attributed to the growth of the population. Along with that, the emergence of China is another reason. In the last five years, the main export market, Japan and many other Asian trading partner countries experienced subdued growth; hence the export sector of Australia captured a new emerging market of China (Battellino 2013). In the past 20 years, the Australian economy demonstrated a greater degree of flexibility. Hence, the resiliency has been increased, which has enabled the economy to handle all the external shocks, for example, the break down of the dot.com bubble, Asian crisis and the global financial crisis following the collapse of US subprime credit bubble etc. (Bagshaw and Massola 2017).

One of the major key elements of flexibility is the floating exchange rate of the country. To respond to the various external shocks, the currency has risen and fallen, otherwise the events could have destabilized the domestic economy. During the Asian and Dot-com bubble, the Australian dollar depreciated quite sharply to respond to the deteriorating condition of the international economy. This had helped to insulate the domestic economy (Stiglitz and Guzman 2016). Even during the 2008 financial crisis, the Australian dollar rose sharply along with the commodity prices. It helped in dissipation of pressures, which could otherwise cause the economy to overheat. The temporary sharp fall in the exchange rate helped the economy to remain stable during the financial crisis (Rahman, Shahbaz and Farooq 2015). Other factors include many economic reforms in industrial policies, which made the business sector more open and competitive. Due to labor market reforms, the market had increased flexibility, which could adjust to the changing economic conditions without resulting large level of unemployment or unsustainable wages. Financial sector reforms have brought more capacity for meeting the financial needs of the country and have made the country more attractive to the foreign investors (Janda and Letts 2017).

Hence, investment from domestic as well as foreign investors increased substantially. This has contributed significantly in raising the GDP level of the country. Level of demand in the economy increased as people had more money. Employment level increased, production increased and hence, GDP also increased. The government budget was highly improved too. Level of government debt decreased and Australia became one of the best positioned countries in the government finances. Through stable monetary policies the Australian government kept the inflation level low and made the economy stable. The economy is growing at the rate of 2% to 2.5% per year, which is however lower than the growth rate in the past (Glynn and Rogers 2017).

Conclusion

According to the Australian Industry Report, 2015, by the Australian government, (Dept of Industry, Innovation and Science), all the sectors, barring construction and manufacturing, experienced growth. The mining sector has seen a big change as output grew by 7.6% while employment fell by 15%, as seen in Figure 2. The major growth happened in information and media, accommodation and food services, tourism, financial and insurance and health care and social assistance sector, within the service industry. Even if the international economy is expanding with a very low oil price and low interest rate, the global growth is uneven. Fall in the Australian dollar during 2012-2013 has helped the domestic industries to raise their competitiveness in the international export market during this uneven growth (industry.gov.au, 2015).