An Analysis of the Australian Economy

Question : Discuss about the an Analysis of the Australian Economy ? Answer : Introduction The Australian economy experienced rapid growth in the 20th Century and had strived to remain stable and prosperous. The country is endowed with an abundance of resources and a well-developed diverse primary-sector-oriented economy. Its GDP per capita ranks at 17 out of 191 nations of the world. The standards of living in the country are high can only be likened to that in developed countries like Europe and the US. It is noteworthy that the Australian economy depends heavily on trade. Its economy is an open market with minimal restrictions on imports of services and goods. The process of opening up trade has increased the nations productivity and stimulated growth, making it flexible and dynamic. Production Output Performance Analysis Over the years, the Australian economy has been experiencing continuous growth with minimal cases of unemployment, contained inflation and very low public debt. In addition, it had a vibrant and stable financial system. Real Gross Domestic Product Currently, Australias GDP is approximately 1.22 trillion US dollars. It has declined slightly compared to the preceding financial year. The nation faced a slight drop in growth after two decades of continuous growth and stability. Consequently, the real GDP declined. Even so, the country still boasts excellent performance and is ranked 14th worldwide in per capita GDP. In 2011, the GDP was approximated at 1.5 trillion US dollars. In the following year, the value of GDP rose to 1, 559 billion US dollars and declined slightly in 2013 to 1506 billion US dollars. In 2014, the gross domestic product declined sharply by 62 billion US dollars (Australia GDP, 2016). Since 1960 until 2015, the average GDP of the country is 386.58 USD billion. The highest value in this period was 1563.90 USD billion in 2013 while the lowest GDP value is 18.60 USD billion in 1960 (Australia GDP, 2016). Source: Trading Economics (2016). According to the chart above, in 2006, the GDP of Australia continually increased up to 2008, after which it experienced a slight decline. Afterward, from 2009, the GDP rose slightly and continuously up to 2012. It is after 2012 that the nations performance started to diminish. Since then, the GDP has constantly been decreasing (Jericho 2016). Real GDP Growth Rate In the third quarter of 2016, the GDP in Australia expanded by 1.08 percent. By and large, this is the lowest level of growth achieved since the 2009 financial year (Australia GDP, 2016). On average, the highest level of growth is 3.49 percent since 1960. The highest annual growth rate was recorded in 1967 at 9 percent. On the other hand, the lowest GDP growth was attained in 1983 at negative 3.40 percent (GDP Growth, 2016). In 2016, the economy experienced an unanticipated contraction of 0.5 percent in the third quarter despite an upward 0.6 percent growth in the June quarter. This contraction is the first since the March quarter 2011. It is also the fastest fall since the December quarter 2008 (Australia GDP, 2016). Source: (World Bank, 2016) There was real growth between 2006 and 2007. However, in 2007, the real growth rate declined sharply between 2007 and 2009. The economy later recovered in 2010 but decreased in the following year. In 2012, the real growth increased significantly but dropped later in 2013. In 2014, the trend continued increasing by a small percentage. It then fell in 2015 and 2016. Real GDP Per Capita In 2015, the Gross Domestic per Capita in Australia was estimated at 54717.71 US dollars. On average, the GDP per capita of Australia is equivalent to 433 percent of the worlds average. The average value for the country between 1960 and 2015 is estimated at 35504.35 USD (Australia 2016). It is noteworthy that the highest level of per capita was attained in 2015 valued at 54717.71 USD. On the other hand, the lowest value was achieved in 1962 with a recorded level of 19172.27 (GDP Per Capita, 2016). In the period between 2006 and 2016, the highest real GDP per capita was attained in 2015, while the lowest was marked in 2006 (Australia 2016). Source: (World Bank, 2016). Government Measures Deregulation is one of the criteria used by the Australian government to increase the GDP of the country. As such, the government relaxes the rules and regulations governing the entry and exit, operation and terms of trade allow businesses and firms to operate in the economy thereby contributing to growth through the creation of employment opportunities, and tax revenue. Also, it uses tax reduction and tax abates to encourage economic activity in the country. Eventually, this leads to economic growth and increase in the GDP. Labour Market Analysis Australia has strived to manage the employment rates in the country at low levels compared to other nations of the world. Even so, unemployment is a persistent problem in the countrys economy. Changes in production patterns led to a significant loss of jobs and low job opportunities in the country (Jericho, 2015). Consequently, the levels of unemployment increased. In Australia, an individual is considered to be unemployed if they are actively looking for work but are unable to find any. Therefore, individuals who are not actively looking for job opportunities are not included in during the computation of unemployment data. Some of the major concern areas related to this issue are the increasing youth unemployment and lack of employment opportunities for older workers. As such, the youth, immigrants and the single have a higher risk of unemployment. As at October this year, the countrys seasonally adjusted unemployment rate was approximated at 5.6 percent (Labor Force, 2016). The joblessness rate has stagnated since September 2013. Mainly, this is attributed to the fact that the labor force participation rate remained constant while the number of jobless people decreased by 2,000. From 1978 to 2016, the average level of the unemployment rate is 6.93 percent. The highest level of joblessness was 11.10 percent in October 1992, while the lowest is 4 percent in 2008 (Labor Force, 2016). Types of Unemployment Structural Unemployment. Typically, it occurs due to structural problems in the economy. In Australia, it occurs when the skills of the workers do not match the skills that the employers want for a particular job. It may also be a result of insufficient demand for workers in the labor markets. Usually, the changes in technology or tastes and preferences of the consumers may lead to the decline in the demand for workers in the labor market. Therefore, many workers lose their jobs. Currently, structural unemployment is the most prevalent type of unemployment in Australia. Frictional Unemployment. This occurs due to the normal turnover in the labor market. As such, it is the period when an employee transforms from one job to another. It arises when a worker is changing careers, locations or jobs. It takes to match up potential employees with their desired jobs. Therefore, in the period between the change of a job, location or career, the workers may remain unemployed before securing themselves another suitable job. This form of unemployment is also common in Australia and other nations. Cyclical Unemployment. It occurs when the economy experiences ups and economic downturns. When the economy enters a recession, many individuals lose their jobs as industries try to cut down their costs. Therefore, a sharp decline in the GDP or recession may lead to cyclical unemployment. Often, the recession is characterized by fall in demand for goods and services, resulting in diminished production and a decline in the demand for workers in the market. Long-term Unemployment. It occurs when an individual remains unemployed for more than 52 weeks. In Australia, the long-term unemployed individuals ate less well-educated than the rest of the population. In addition, indigenous mature aged people and persons with a disability are also among the population that suffers from long-term unemployment. Government Measures to Reduce Unemployment In 2009, the Australian government initiated the Job Services Australia (JSA) program to provide greater incentives for job linked vocational training and longer time employment. It also uses policy reforms to render the labor market more flexible. The government created a monetary policy and deflationary policy to control employment level and enhance its economic growth. A low minimum wage policy is also used to improve the levels of employment in the country. Specifically, low wages imply that the producers can hire many workers at minimal costs. Price Level Analysis Inflation is the sustained increase in the general level of prices in the economy. It may affect an economy in a positive or negative manner. Often, the negative effects of inflation relate to the fact that they lead to an increase in the opportunity cost of holding money (Au, 2007). As such, there is uncertainty over the future inflation, thereby discouraging savings and investments. The positive effects pertain to the fact that that reduces the real burden of public and private debt (Amadeo, 2016). Types of inflation Creeping inflation. It is a mild type of inflation and occurs when the price level in an economy rises by less than 3 percent per year. According to the U.S Federal Reserve, this kind of inflation is beneficial to the economy as it can lead to economic growth. Mainly, this is because the mild rise in prices creates the expectation that prices will continue to grow, thereby creating increased demand for goods and services. Australia experienced this type of inflation this year when the price levels grew by 1.3 percent. Walking inflation. Occurs when the price levels increase by 3-10 percent a year. It has a negative impact on the economy as it may heat up economic growth too fast. Specifically, people start to purchase more goods to avoid high prices in future. In turn, this drives demand up, and suppliers are unable to meet strong demand. As a result, common goods and services are highly priced making them unaffordable to people. Galloping inflation. Occurs when the level of inflation rises above 10 percent. It creates damage to the economy. At this point, money loses value and business cannot keep up with the costs and prices. Unemployment levels begin to increase. Foreign investors avoid the country. Also, the economy becomes unstable, and government leaders lose credibility. Hyperinflation. This is when the inflation rate is 50 percent and above. It is a rare type of inflation and occurs when the government prints excessively large amounts of money and pumps into the economy. Inflation Trend in Australia This year, Consumer prices in Australia rose by 1.3 percent throughout the year up to the third quarter (Australia Inflation, 2006). The greatest upward pressure emanated from the increase in food and non-alcoholic beverage prices since the floods affected the supply of vegetables. The cost of clothing, furnishing, housing and household equipment also increased significantly. In the same way, the cost of financial services and insurance services also rose sharply. In contrast, the prices for transport and communication continued to decline. In the first quarter of 2016, consumer prices have increased by 0.7 percent. The highest inflation rate since 1950 was 23.90 percent, experienced in the fourth quarter of 1951. The lowest level was experienced in the second quarter of 1962 at negative 1.30 percent (Australia Inflation, 2006). Causes of inflation in Australia The main causes of inflation in Australia are either demand pull or cost push. Demand-pull inflation often occurs when the demand for goods and services increases beyond the supply available in the economy. As a result, suppliers raise their prices, thereby creating inflation. Inflation could also occur due to cost push factors. This occurs when producers pass the costs of production to the consumers. Government Measures to Achieve Stable Prices The government uses monetary policies to set higher interest rates. This increases the cost of borrowing and discourages the level of spending in Australia. In turn, this leads to lower economic growth and reduces inflation. Also, the Australian government employs strict fiscal policies through higher taxes and lower government spending. Eventually, this reduces aggregate demand leading to lower demand pull inflation. Sometimes, supply side policies are also initiated with to reduce the costs of business and in turn lower inflation. Conclusion By and large, the Australian economy is one of the best-performing economies in the world. It is characterized by a steady increase in its real GDP and percentage growth. It enjoys relatively stable price levels. However, despite the good economic performance, the country is faced with unending unemployment issues. In addition, the nation has been experiencing declines in per capita growth. As a result, the government has instigated measures to ensure that the countrys economic performance continues to grow at a steady rate. It combines aspects of monetary policy, fiscal policy and structural reforms to enhance Australias economic growth. References Amadeo, K. (2016). Types of Inflation: The 4 Most Critical Plus 9 More. The Balance. 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