Economic Performance Of Australia: GDP, Standard Of Living, Governmental Measures, Balance Of Trade

Question :

Discuss about the Economics Performance of India ?

This study has highlighted the overall economic performance of Australia. In this purpose, this study has provided the overall production output performance of the country. Therefore, it is helpful to understand the growth rate of the country. In addition, it can be mentioned that the purchasing power parity of Australia can be identified. This would reflect the standard of living of the country. Moreover, this study is helpful to identify the financial performance and the economic position of the country. The role of the Australian government has also described in this study, which is important to understand how the federal government of the country controlled the economy of the country. On the other hand, the labour market of Australia has described in this study. In this connection, the trend of unemployment rate of the country would be understood. Furthermore, it can be mentioned that the trend of the price level of Australia would be mentioned in this study. This would be benefitted to identify the rate of inflation of Australia.

Production output performance analysis

According to Mankiw (2014), it can be stated that the gross domestic product is a macroeconomic tool, which can measure the overall output of an economy with the change in the price level. Gross domestic product of the country would reflect the rate of inflation or the rate of deflation of that economy. In this respect, it can be mentioned that the rate of gross domestic product of an economy would be raised by the reflection of rate of inflation. Nevertheless, it can be argued that the real growth of an economy could not be controlled by the rate of inflation of a country. In this reason, it can be mentioned that in order to get the real growth rate percentage of an economy, the inflation rate is required to subtract from the gross domestic product of the country. Evans & Honkapohja (2012) opined that this is the real gross domestic product of the country. It can be mentioned that the economy of Australia is known as the largest mixed economy. In the year of 2012, Australia was at 12^th position in terms of nominal GDP rate and was at 17^th position in terms of purchasing power parity. On the other hand, Burda & Wyplosz (2012) added that Australia is the 19^th largest importer as well as 19^th largest exporter.

                                                                                Figure 1: GDP growth rate of Australia

                                                                                 (Source: Data.worldbank.org. 2016)

As per the statement of Gandolfo (2013), the service sector of Australia dominates the economy of the country and includes approximately 68% of GDP. Therefore, the greater earning of the country can be achieved from the service sector of Australia. From the above figure, it can be noticed that the growth rate of Australia has unexpectedly decreased by 0.5 percent in the third quarter of the year of 2016. On the other hand, it can be stated that the GDP growth rate was 0.6 percent in the June quarter. In addition, it can be observed that the first contraction of Australia was experienced from March, 2011 and it was started from December, 2008. In the words of Brunnermeier, Eisenbach & Sannikov (2012), the economy was experiencing 1.8 percent growth rate through the year. The growth was weakest from the year of 2009. Moreover, the gross capital formation was also decreased by 2.7 percent and the private investment was also decreased by 0.8 percent.

Gross per capita rate of Australia

Gross per capita rate of Australia:

                                                                                Figure 2: Australia GDP per capita

                                                                              (Source: Data.worldbank.org. 2016)

The above figure depicted that the GDP per capita of Australia has been increasing with the rise in time. Therefore, it can be mentioned that the standard of living of the country has been increasing. In the point of Wray (2015), it can be stated that in the year of 2015, the gross domestic product per capita was 54717.71 US dollars. In this connection, it can be mentioned that the gross domestic product per capita in Australia is approximately 433 percent in average. Moreover, GDP per capita of Australia is 35504.35 USD from the year of 1960 to 2015 and this rate was highest in 2015. The rate was 54717.71 USD.

On the other hand, Coeurdacier & Rey (2013) opined that the Australian government stimulus package can effectively prevent the situation like recession by implementing stimulus package. The world bank of the country has predicted that the GDP growth rate of Australia would be 3.2% in 2011 and 3.8% in 2012. The growth rate of Australia was reported by approximately 4.3%. Moreover, it can be mentioned that the international monetary fund of Australia has forecasted that this country would be the best performer economy within the world in the coming two years. In this connection, Goodwin et al. (2013) opined that the Australian government has predicted that the forecasted growth rate of the economy was 3.0% in 2012 whereas the growth rate in 2013 was 3.5%. On the contrary, Gurkaynak & Wright (2012) argued that although the national economy of Australia has been growing, some of the non mining states of the country have experienced recession.

Governmental measurements of Australia:

According to Hein (2012), in order to measure the economic performance of a country, the government of the economy has performed an important role. Taxation of Australia is controlled by the federal government level. The federal government increases the revenue through the business taxes and also from the personal income taxes. On the other hand, it can be mentioned that the federal government of Australia is the major income source of the Australian state government. Therefore, Argy (2013) mentioned that the state government of Australia is depending upon the federal taxation revenue in order to achieve the decentralised expenditure responsibilities. This situation can be discussed as the vertical fiscal imbalance. As a result, it can be mentioned that the centralisation of revenue collection is important to force the state policies and regulations in order to enhance the scope of the constitutional powers.

Balance of trade of Australia:

                                                                            Figure 3: Australian balance of trade

                                                                            (Source: Data.worldbank.org. 2016)

From the above figure it can be observed that Australia’s trade deficit has increased by 21% to 1.54 billion in 2016. Moreover, the above figure depicted that the market expectation was suffering from 0.80 billion gap with the rise of export from 1.0 percent to 27.63 billion. In addition, the import also went up at a faster rate from 2.0 percent to 29.17 AUD billion.

Governmental measurements of Australia

Labour market analysis

As per the statement of Mankiw (2014), it can be stated that in order to understand the Australian labour market analysis, it is necessary to first identify the rate of unemployment of the nation.

                                                                             Figure 4: Unemployment rate of Australia

                                                                                (Source: Data.worldbank.org. 2016)

From the above figure it can be observed that the rate of unemployment has increased with the rise in time. In this connection, it can be mentioned that rise in the unemployment rate is adversely related with the GDP growth of the country. This relationship can be described with the help of Okun’s Law. As per the Okun’s Law, it can be stated that one percent rise in the unemployment rate is related with the two percent decrease in the real GDP. On the other hand, it can be mentioned that wage rate per employees has decreased. This also prevents the country’s progress. The overall national income of Australia has also declined. Moreover, the employment rate of Australia has decreased. As opined by Coeurdacier & Rey (2013), it can be mentioned that Australia’s seasonal adjusted unemployment rate rise to the 5.7 percent in 2016 from 5.6 percent to the previous year. As per the Australian report regarding the unemployment rate, it can be inferred that the rate of unemployment was highest in 2016.

It can be mentioned that Australia has been suffering from several types of unemployment within the organisation:

In the words of Gurkaynak & Wright (2012), based on the economic structure of Australia, the country has been suffering from the unemployment rate. The reason can be described as due to the changing of the economic forces supply and the demand, Australia has been suffering from the structural employment. This distinction between the skills and the knowledge of the employees has reflected the structural unemployment. In Australia, Australia’s economic performance is based upon the external demand of growth. As a result, it can be concluded that the unemployment rate of Australia is cyclical in nature. In this point, it can be mentioned that with the decrease in the export, the aggregate demand of the country would be declined. Hence, the country’s outcome and the national income of Australia would be decreased. This scenario would be described in terms of the following figure:

                                                                               Figure 5: cyclical unemployment rate of Australia

                                                                                                 (Source: Hein, 2012)

• Cyclical unemployment:

As per the opinion of Argy (2013), the cyclical unemployment of Australia is reflected due to the fluctuation of business. During the situation of economic boom, it can be mentioned that the unemployment rate of Australia has declined. Moreover, in the situation like country’s recession, the rate of unemployment of an economy would be increased. Wray (2015) added that in case of short term unemployment, the economic fluctuation of a country would be diminished

.

                                                                                        Figure 6: Cyclical unemployment

                                                                                            (Source: Gandolfo, 2013)

In the point of Burda & Wyplosz (2012), the situation of the cyclical unemployment will differ due to the changing of the technology from the labour to the capital intensive country.

Balance of trade of Australia

Government estimation to maintain full employment:

It can be stated that there are two approaches, these two methods can reduce the unemployment rate of a country and can also enhance the employment rate of Australia. The strategies can be described as the following manner:

• The Australian government requires to focus to the country’s demand side policies. This would be capable to decrease the Australia’s cyclical unemployment by considering the business cycle fluctuation.

• Next, the Australian government needs to focus to the supply side policies of the economy. This can decrease the country’s existing structural unemployment. Therefore, it can b inferred that with the rise in time, the structural unemployment of the country would be decreased and the rate of employment would be increased.

Price level analysis

In the point of Gandolfo (2013), it can be mentioned that with the rise in the price level of an economy, then it can be mentioned that the inflation rate of Australia will be improved. As a result, this will increase the supply of money of Australia.

Inflation rate of Australia:

                                                                                    Figure 7: Inflation rate of Australia

                                                                                     (Source: Data.worldbank.org. 2016)

The above figure depicted that the rate of inflation of Australia has been decreasing with the rise in time. As opined by Coeurdacier & Rey (2013), it can be mentioned that consumer price index is an important tool, which can estimate the inflation rate of an economy. In addition, it can be inferred that with the decrease in the price level, the inflation rate will be decreased and the rate of unemployment will be increased. This inverse relationship between the unemployment rate and the inflation rate can be described with the help of the Phillips curve. On the contrary, Hein (2012) argued that if the price level and the supply of money of a country is increasing rapidly, then the economy will experience the situation like hyperinflation. On the other hand, when the unemployment rate of a country has increased massively, then there will arise the situation like stagflation.  

Conclusion

This study is important to identify the overall economic performance of Australia. In this purpose, this study has highlighted the GDP growth rate and the GDP growth per capita of Australia. After the analysis, it can be observed that the GDP growth per capital has been increasing within the country. Therefore, it can be inferred that the standard of living of the country has also increased. On the other hand, in this study the unemployment rate and the rate of inflation of the country have discussed. In this purpose, this study has provided the impact of the higher inflation rate on the country’s economy.

References

Argy, V. (2013). International macroeconomics: theory and policy. Routledge.       

Brunnermeier, M. K., Eisenbach, T. M., & Sannikov, Y. (2012). Macroeconomics with financial frictions: A survey (No. w18102). National Bureau of Economic Research.

Burda, M., & Wyplosz, C. (2012). Macroeconomics: a European text. Oxford university press.

Coeurdacier, N., & Rey, H. (2013). Home bias in open economy financial macroeconomics. Journal of Economic Literature, 51(1), 63-115.

Current account balance (BoP, current US$) | Data. (2016). Data.worldbank.org. Retrieved 17 December 2016, from https://data.worldbank.org/indicator/BN.CAB.XOKA.CD

Evans, G. W., & Honkapohja, S. (2012). Learning and expectations in macroeconomics. Princeton University Press.

Gandolfo, G. (2013). International Economics II: International Monetary Theory and Open-Economy Macroeconomics. Springer Science & Business Media.

GDP growth (annual %) | Data. (2016). Data.worldbank.org. Retrieved 17 December 2016, from https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG

GDP per capita (current US$) | Data. (2016). Data.worldbank.org. Retrieved 17 December 2016, from https://data.worldbank.org/indicator/NY.GDP.PCAP.CD

Goodwin, N., Nelson, J., Harris, J., Torras, M., & Roach, B. (2013). Macroeconomics in context. ME Sharpe.

Gurkaynak, R. S., & Wright, J. H. (2012). Macroeconomics and the term structure. Journal of Economic Literature, 50(2), 331-367.

Hein, E. (2012). The macroeconomics of finance-dominated capitalism and its crisis. Edward Elgar Publishing.

Inflation, consumer prices (annual %) | Data. (2016). Data.worldbank.org. Retrieved 17 December 2016, from https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG

Mankiw, N. G. (2014). Principles of macroeconomics. Cengage Learning.

Unemployment, total (% of total labor force) (modeled ILO estimate) | Data. (2016). Data.worldbank.org. RetrievedReferences17 December 2016, from https://data.worldbank.org/indicator/SL.UEM.TOTL.ZS

Wray, L. R. (2015). Modern money theory: A primer on macroeconomics for sovereign monetary systems. Springer.