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Australia is one of the fastest growing economies in the world today. It has been ranked the 13th largest economic market in terms of the current Gross Domestic Product (GDP) growth. Its success in the past two years has been linked to impressive performance in the service sector which comprises of 67% of the total market value of finished goods. Latest statistics indicate that Australia is worth about 1.23 U.S trillion dollars (Gross Domestic Product).
The government of Australia does not lay too much emphasis on agricultural and mining since when the two sectors are combined, the contribute a total of 12% only to the country’s Gross Domestic Product (Richards, Simpson & Evans, 2009, p. 18). As a result, much of the exports to Japanese, Chinese, Indian, United Kingdom and United states markets have accelerated Australia’s economic growth over the last two years (Richards, Simpson & Evans, 2009, p. 17).
Australia has low rate of unemployment index which stands at about 5% (Harcourt, 2009, p.145). Its current rate of inflation is also low at about 2.5% while the interest base of 5.7%.Due to its continued growth in GDP and per-capita income, several investors are eying the country for purposes of investing.
Several multinational companies especially from China have found their way in Australia to exploit the existing opportunities. Some of the companies that are currently running their operations in Australia include Coles Group and Wesfarmers. This paper offers a succinct analysis of Australian economy in terms of Gross Domestic Product, level of inflation, rate of unemployment and the balance of payments.
Economic growth
The economy of Australia has registered a significant growth between 2009 and 2011. Recently, the Gross Domestic Product (GDP) in Australia rose by 0.30 percentage points in the third quarter of 2011 as compared to the previous quarters.
Besides, Australia’s average quarterly GDP Growth currently stands at a positive economic growth of 0.94 percent. Although Australia’s economic growth is mostly supported by the services sector, the abundance of agricultural and mineral resources is also another avenue through which the country has been able to build its robust economy.
For instance, the Gross domestic product for the first two months in 2009 went down by 1.4% from the previous quarter, compared with revised growth of 0.6% in the previous quarter. The latter growth index was mainly as a result of the non-service sector. Although mining resources went down by 4.1%, it contributed towards a decline of -0.7 percentage points to the GDP.
On the same note, the same period of time also witnessed a decline in manufacturing by 2.1% and agriculture by 8.9%. In total, both sectors contributed a sum of 0.3 points to the decline in Gross Domestic Product. Current economic indicators reveal that the economic growth in terms of GDP has expanded from US$985.2 billion to US$ 1506.7 billion in the past two years.
Moreover, the growth in respect to GDP per capita has risen from 850 US$ in 2009 to 923 US$ in 2011. The real GDP growth has also risen from 1.4 in 2009 to 2.1 in 2011. Having seen these information, it is clear that the Australian economy has been gradually been expanding positively and has reached the magnificent height required for any country’s economic stability.
Unemployment levels have recently contributed to the economic downturn of Australian economy. Due to the level of unemployment, economic recessions occurred between early 2009 and beginning of 2010. Although these recessions were mainly triggered by the global financial crisis, the economic downturn of the Australian economy was largely affected by the massive rate of unemployment.
Usually, economic downturns are typically characterized by rising rate of unemployment, falling employment and a decrease in the participation rate of the majority of citizens in the country as it is the case in Australia.
A release by the Australia bureau of statistics (ABS) indicates that the number of employed persons in Australia has generally risen from early 2009 which marked the end of major economic downturn in the country.
As noted by a labor survey through the recent civilian population estimates, there is a corresponding influence on the level of estimates in Australia labor characteristics like the number of the people employed (Harcourt, 2009, p.144).
The survey indicates that any new estimate of the number of employed persons in a month will have a portion of this population increase, including a plus or minus the relative changes in Australia’s employment characteristics.
The ABS indicates that the number of unemployed persons has drastically risen after every three main economic downturns. The largest increase was between November 2007 and December 2009, rising 441,200 persons, almost doubling (88.4% increase) from 468,800 to 894,000, the highest recorded level of unemployment since 2005.
The number of unemployed persons during the two most recent downturns reached maximum at similar levels; 660,068 persons in October 2009 and 673,400 persons in August 2011.
Prices and rate of inflation
Price in this context is viewed in terms of consumer price index and level of inflation in Australian economy. It involves inflation and deflation levels measured using Australian consumer price index issued by Australian Bureau of Statistics (Harcourt, 2009, p.144). In collaboration with several central banks across the world, Reserve Bank of Australia has been in the forefront in adopting measures that aim at reducing the levels of inflation.
Using 16th series Australian consumer price index, there has been significant changes registered in the prices of commodities. In the quarter ended September 2011, there was a 0.6% increase in (all groups) consumer price index in comparison with a 0.9% increase for the quarter ended in June 2011 leading to an overall rise of 0.1% from 3.5 to 3.6% for all groups CPI (Stebbing & Spies-butcher, 2010, pp.585-587).
The reserve Bank of Australia simultaneously uses periodic adjustments to the interest rates and consumer price index growth to achieve inflation targeting. The difference is that CPI is reviewed on yearly basis while interest rates are adjusted on monthly basis. Over the last two years, Australia has maintained low levels of inflation rates ranging from 2%-3%.
Australia 2007 – 2011 Consumer Price Index
Balance of payments relates to the difference between exports and the imports (Harcourt, 2009, p.145). In the last two years, Australia has consistently recorded a favorable balance of payment and it is ranked 19th throughout the world for both exports and imports.
According to report released by the Australia Economy watch in 2009, china is the largest export market for Australia. In 2009 alone, Australia exported around 265 million of iron ore which was a marked increase from the previous year by 45%.Many Chinese companies have invested in Australia. The chart below shows value addition through exports and imports in Australia.
Exports
Imports
From the above sample, local exporting businesses accounted for about 13 % while 13.6% accounted for those businesses that engaged in importing. This scenario presented a fairly favorable balance of payment (Australian Bureau of Statistics, 2010).
They have even gone further to lease land from the government of Australia to undertake mining on their own. This trend has seen Australia’s mineral exports increase drastically to about U.S 140 billion dollars in 2010 and it is expected to grow to around U.S 200 billion dollars by the end of 2011.
Moreover, Australia’s other export markets include Japan, USA, United Kingdom, Thailand and Singapore. Another upcoming trading partner which is nurturing closer economic ties with Australia is New.
Economic Policies
Economic policy refers to the actions taken by governments of any given country in economic field. It entails the use of systems put in place by governments in order to set suitable and workable interest rates, competitive and more fruitful labor market, national ownership and formulation of government budget including many other areas in economy that requires government interventions (Makin, 2010, p.8). The Australian government has well-structured economic policies which are applicable in every corner of the economy. Economic policy takes different forms as discussed below.
Demand side policies
Demand side economic policy refers to the aggregate demand in the economy of any country. In our case, the economic policy actions are designed to effect aggregate demand (Makin, 2010, p.9). The Australian government microeconomic management is well designed to minimize fluctuations through influencing demand so as to achieve its objectives of sustained growth with minimum inflation and zero level of unemployment. In influencing demand with and economy, the Australian government uses the two instruments of fiscal and monetary policy.
Fiscal and budgetary policies
Fiscal policy mainly involves the use of government’s budget in order to influence the economic targets and objectives by varying the amount of government spending and revenue, the government also alters the level of economic activity, with a fiscal surplus, fiscal deficit, and/or a balanced budget.
This budget outcome is formed through automatic stabilizers such as government spending through transfer payments adjust accordingly to the state of the economy in the country, and also through the structural component, where proposed changes by the government such as reduced spending deliberately alter economic activities in the country. Fiscal policy has always been relied upon heavily by the Australian government (Harcourt, 2009, p.144).
Over a short-term period, fiscal policy is employed when the government aims to stimulate growth. This is done through increasing government spending and reducing taxation, causing a resultant increase in consumption and investment in the economy.
Monetary policies
The rate at which interest rates are set in an economy in relation to the cost of borrowing is indeed a monetary policy followed by many countries. This policy also dictates the quantity of money that is allowed to be in supply at any given time. Hence, quite a number of tools are used to regulate economic growth using this form of monetary policy.
These tools include unemployment index, exchange rate and inflation. The monetary policy can use contractionary method which aims at reducing the money supply in the economy or increases it only slowly by raising the interest rate (Economy Watch, 2010, p.2). Reserve Bank of Australia (RBA) uses monetary policy to influence the cost and availability of money and credit within the economy.
Supply side policies
A Supply Side economic policy considers how to improve the productive capacity of the economy of a country. The need to monitor and regulate labor markets is also assessed under supply side policies (Economy Watch. 2010, p.3). Hence, a government may decide to make changes in the aggregate supply as part and parcel of minimizing failure of markets.
Hence, for the Australian government, supply side policies have been created by reducing the level at which the government involves itself with marketing dynamics such as in the mortgage industry. The chart below illustrates supply side policy in the mortgage sector in Australia.
Privatization
This involves the process whereby private sector purchase assets that are owned by the state. One of the main reasons why privatization is carried out is to increase efficiency and service delivery. In addition, privatization assists in cutting down costs by adopting lean operation. As a matter of fact, the Australian economy has indeed benefitted a lot privatization in the past two years.
Reducing Income Taxes
Tax reduction policy has been adopted by the Australian government as a way of boosting trade and investment in the country. Both the corporate and income tax regimes have been brought down considerably.
This has been seen to work since income effect does not seem to outweigh substitution effect. This has greatly increased the incentive to work extra hander and therefore increased the productivity in the county economy (Harcourt, 2009, p.143).
References
Australian Bureau of Statistics. 2010. Australian Economic Indicators, Web.
Economy Watch. 2010. Australia Economy. Web.
Harcourt, T. 2009. Double or nothing? A note on exporter targets. Australian Journal of Management, 34(1), 143-146.
Makin, A. J. 2010. Did Australia’s fiscal stimulus counter recession? Evidence from the national accounts. Agenda: A Journal of Policy Analysis and Reform, 17(2), 5- 16.
Richards, N. D., Simpson, J. & Evans, J. 2009. The interaction between exchange rates and stock prices: An Australian context. International Journal of Economics and Finance, 1(1), 3-23.
Stebbing, A., & Spies-butcher, B. 2010. Universal welfare by ‘other means’? social tax expenditures and the Australian dual welfare state. Journal of Social Policy, 39(00472794), 585-606.
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