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Economic growth of Australia

Discuss about the Resources Boom and Australian Economy.

This study has aimed to highlight the current state of Australian economy and the management by Federal government. In this connection, this study is beneficial to examine the economic growth, unemployment and the inflation rate of the country. In addition, this study is also helpful to understand the trading situation of the country. In this purpose, the terms of trade, the current account and the net foreign debt of Australia have been mentioned (Bishop et al. 2013). Based on the analysis, this study has demonstrated the current macroeconomic policies of the Federal Government and Reserve Bank of Australia of Australia. In this context, the role of the Federal government and the Reserve Bank of Australia have been mentioned.

According to Butterworth et al. (2012), the economy of Australia is the largest and the mixed market economy in the world. Moreover, Australia is 12th largest national economy in terms of nominal GDP and in 17th position in terms of purchasing power parity. In this section, the GDP growth rate of Australia of last 10 years has been discussed in the following:

Year

GDP growth rate (%)

2006

2.98

2007

3.76

2008

3.71

2009

1.82

2010

2.02

2011

2.38

2012

3.63

2013

2.44

2014

2.5

2015

2.26

Table 1: GDP growth rate of Australia of 10 years

(Source: Data.worldbank.org. 2016)

From the above table it can be observed that the GDP growth rate in Australia has been decreased. In the words of Dufty-Jones (2015), Australian government played an important role in order to prevent the global financial crisis during the time of 2007 to 2012. The World Bank has predicted that the growth rate of Australia would be 3.2% in 2011 and would be 3.8% in the year of 2012. However, with the expansion of the economy, the GDP rate was actually expanded by 1.3% in the year of 2012 in the definite country.

Moreover, Gregory (2012) added that economists have been expecting that the growth rate is needed to lie between 2.75% and 3%. Nonetheless, the net export growth rate has increased rapidly compared to the anticipation and the rate was 1.1%. On the other hand, it can be mentioned that the GDP growth rate of the country may be decreased in the future (Dufty-Jones 2015).

In order to discuss the unemployment rate of last 10 years of the country, this study has tried to represent the rate, which has been discussed in the following table:

Year

Unemployment rate (%)

2006

5.1

2007

4.6

2008

4.2

2009

5.7

2010

5.4

2011

4.9

2012

5.2

2013

5.4

2014

6

2015

6.4

Table 2: Unemployment rate

(Source: Data.worldbank.org. 2016)

Unemployment rate

The above table depicted that the trend of unemployment rate has been fluctuating. In addition, this rate has been increased from the year of 2014 to 2015. In this connection, Gould (2013) opined that rise in the unemployment rate would effectively reduce the Australia’s GDP growth rate. As per the Okun’s law, there is an adverse relationship between the unemployment rate and country’s GDP growth rate. In this connection, it can be stated that the labour rate can be improved with the help of the production process. More specifically, it can be mentioned that with the rise in the 1% in the unemployment rate, Australian GDP growth rate would be decreased by 2% (Herndon, Ash and Pollin 2014).

As per the statement of Groenewegen and McFarlane (2014), the rise in the price level of the products with the rise in time, the rate of inflation of a country will be increased. On the contrary, it can be stated that increase in the inflation rate would reduce the purchasing power per unit of money. Therefore, real value of money would be decreased (Groenewegen and McFarlane 2014). In this purpose, this study has tried to highlight the last year’s rate of inflation of Australia.

Year

Inflation rate (%)

2006

3.5

2007

2.3

2008

4.4

2009

1.8

2010

2.8

2011

3.3

2012

1.8

2013

2.4

2014

2.5

2015

1.5

Table 3: Inflation rate

(Source: Data.worldbank.org. 2016)

The above table depicted that the rate of inflation of Australia has been decreasing over time. Therefore, Herndon, Ash and Pollin (2014) mentioned that the economy of Australia has been rising slowly with the rise in time. From the above table it can be seen that as the rate is lying between 2.5% and 1.5%, therefore, in this connection, it can be conclude that due to lowering down the aggregate demand of the country the inflation rate has been decreasing. Moreover, this trend is maintained by the country, then Australia will suffer from the situation of deflationary situation and the situation of recession will be occurred. This will in turn reflect the rate of unemployment of Australia (Hossain 2014). Therefore, this deflation has a negative impact for the country’s economy. The citizens may reluctant to spend.

Terms of trade implies the relative price of the exportable compared to the price of importable. This ratio of the price of export to import aimed to highlight the amount of importable goods, which can be purchased in terms of per unit of the export of the goods.

Year

Rate of trade (%)

2006

8.9

2007

9.7

2008

8.9

2009

9.0

2010

8.6

2011

8.2

2012

7.9

2013

7.8

2014

8.1

2015

8.0

Table 4: Rate of trade

Inflation rate

(Source: Data.worldbank.org. 2016)

The above table clearly demonstrated that the rate of terms of trade in Australia has been fluctuating or time. On the other hand, Lowe (2012) opined that terms of trade of a country is affected by the country’s exchange rate. Therefore, it can be stated that increase in the value of Australia’s currency, lowering down the domestic prices of the importable of Australia. On the other hand, the value of country’s currency would be decreased the domestic price of the importable. It would not influence the price of the exportable commodities (Norman and Richards 2012).

This study is helpful to identify the trend of 10 years of GDP growth rate, unemployment rate and the inflation rate of Australia. In this context, the effect of Federal government has been mentioned. It can be seen that the GDP growth of the country has been decreasing over time. In this connection, Tiwari (2014) predicted that the GDP growth rate may decrease in the future. On the other hand, the unemployment rate has been increased over time whereas the inflation rate of the country has been decreased. As per the theory of Phillips curve, it can be observed that there is a trade off between the unemployment rate and the inflation rate. This also can be observed that the unemployment rate of Australia has been increasing whereas the inflation rate of the same country has also been decreasing. The higher unemployment rate can be occurred due to the lower job opportunity within the country. Therefore, this will significantly reduce the country’s GDP growth rate. Moreover, Dufty-Jones (2015) identified that lower inflation rate will reflect the export of the country. As a result, it can be mentioned that the exportable will be more competitive, investment will be lower and the menu costs will also be reduced.

Role of reserve bank of Australia can be discussed in this context. It plays an important role in case of policy making of the country. It also tried to maintain a greater financial system and can manage the flow of the currency of Australia (Gregory 2012). Moreover, in case of the management of foreign exchange reserve, RBA plays an important role. On the other hand, the Federal government of Australia can control the inflationary situation by the adjustment of the tax rate. In the words of Gould (2013), Federal government can also control the money supply of an economy, which in turn can control the money supply of Australia.

Trade

Conclusion

This study is helpful to understand the effect of 10 years’s GDP growth rate, unemployment rate, inflation rate and the trading position of the country. In this connection, it can be stated that the GDP growth rate was minimum during the time of global recession. After that, the rate has been increased. On the other hand, the rate has been decreased in 2015 compared to 2014. On the other hand, it can be also observed that the unemployment rate in this country has been increasing over time and the inflation rate of the country has been decreased.

After the analysis, it can be assumed that if the trend of the lower inflation rate has been maintained within the country, it can be mentioned that the country may suffer from the situation of deflation. In this connection, the Federal government of Australia requires to increase the price level of the economy. On the other hand, the job opportunity of the country is required to increase. This in turn influences the GDP growth of Australia. As a result, the GDP growth rate of Australia will be improved.

References

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.

Butterworth, P., Leach, L.S., Pirkis, J. and Kelaher, M., 2012. Poor mental health influences risk and duration of unemployment: a prospective study.Social psychiatry and psychiatric epidemiology, 47(6), pp.1013-1021.

Data.worldbank.org. (2016). GDP growth (annual %) | Data. Available at: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=AE [Accessed on 23 Sep. 2016].

Dufty-Jones, R., 2015. Governmentalities of mobility: The role of housing in the governance of Australian rural mobilities. Journal of Rural Studies, 42, pp.63-78.

Gould, J.D., 2013. Economic growth in history: survey and analysis.

Gregory, R.G., 2012. Living standards, terms of trade and foreign ownership: reflections on the Australian mining boom. Australian Journal of Agricultural and Resource Economics, 56(2), pp.171-200.

Groenewegen, P. and McFarlane, B., 2014. A History of Australian Economic Thought (Routledge Revivals).

Herndon, T., Ash, M. and Pollin, R., 2014. Does high public debt consistently stifle economic growth? A critique of Reinhart and Rogoff. Cambridge journal of economics, 38(2), pp.257-279.

Hossain, A.A., 2014. Monetary policy, inflation, and inflation volatility in Australia. Journal of Post Keynesian Economics, 36(4), pp.745-780.

Lowe, P., 2012. The changing structure of the Australian economy and monetary policy. The Recent Economic Performance of the States 1 Trends in National Saving and Investment 9 The Distribution of Household Wealth in Australia: Evidence from the 2010 HILDA Survey 19 India’s Steel Industry 29, p.79.

Norman, D. and Richards, A., 2012. The forecasting performance of single equation models of inflation. Economic Record, 88(280), pp.64-78.

Tiwari, A.K., 2014. Unemployment hysteresis in Australia: evidence using nonlinear and stationarity tests with breaks. Quality & Quantity, 48(2), pp.681-695.

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[Accessed 22 February 2024].

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