Australia's Economic Growth Dependence on Asia's Demand for Its Resources - Case Study Example

Australia’s Economic Growth Insert Name Tutor Date Australia’s Economic Growth The rapid industrialization and urbanization that has taken place in Asia’s economies is in great demand for natural resources from Australia and also education and tourism services. Australia has played a great role in the ‘Asian Century’ which is being faced by various threats ahead especially on the sustainability of the growth path so far acquired. The growth of Australian economy has on the other hand over relied on demand for its resources by the Asian countries (Liew, 2010). With the looming threats, it is important for Australia to take into account these threats as it decides on whether to increase its dependence on Asia even in the coming century. Many analysts have however questioned the decision of anchoring the prosperity of Australia to demand for its resources by Asia. This paper looks at what analysts have said concerning Australia’s economic growth dependence on Asia’s demand for its resources and how Australia’s economy can respond to changes in Asian demand. The paper also looks at some companies that are contributing to Australian economy by exporting resources. According to a White Paper written by Australian Department of the Prime Minister and Cabinet, Australia has played a very important role in transformation of Asia. There has been a sharp shift in Australia’s pattern of trade with the most important trading partners being China, Japan, Indian and the ASEAN neighbors. China alone takes a quarter of Australia’s merchandise experts and takes back a fifth of Australia’s merchandise imports. According to the White Paper, this demand is highly evident on the natural resources, agriculture and tourism. Australians have however benefitted from the industrialization in Asia through reduced prices for manufactured goods and some services. The rise in income growth in Asia has also enabled may Asians especially from China and India to relocate to Australia for leisure activities, studies and business activities (Australia Department of the Prime Minister and Cabinet, 2012). However, the White Paper warns that success of Australia through the Asian markets is not guaranteed. This is because Australia will face competition for the arising opportunities in Asia. Therefore to minimize this dependence on Asia’s demand, it is important for Australia to adapt and innovate new ways of strengthening the economy and this will require a change on mindset, building new skills and capabilities. Another writer, Ben Hunt has explained Australia’s growth being dependent on demand for resources from Asia by using IMF’s Global Economy Model (GEM) which estimates the impact of Asian demand on Australia’s GDP over the past and the next decade. This model was used to conduct simulation analysis whose results suggested that a substantial portion of Australia’s economic growth is due to its trade in the emerging Asian markets. The simulation analysis results also suggested that Asia’s aggregate impact on Australia is several times greater that its impact on the United States and other countries. Trade between Australia and Asia has seen Australia’s GDP rise by almost 11 percent, which is approximately 25 percent of its increase over the past decade (Hunt, 2010). Focusing on the future, if this Asian demand for Australia’s resources continues to grow in that rate, and also if Australia’s share of imports will continue to increase, Asia’s impact on Australia will be even greater. Ben Hunt however warns that the dependence of Australia’s economic fortunes on Asian demand may result in Australia’s long term growth potential being externally determined and this may result in its growth uncertainty. Phillip Lowe of Reserve Bank of Australia (RBA) states that the developments that are taking place in China are being closely observed in Australia. He also explains that the correlation between quarterly movements in Australia and increase in China’s GDP has increased steadily and what is happening in Australia’s economy is increasingly becoming dependent on what is happening in China. The Australia’s international trade statistics can clearly reflect the overall impact of growth and urbanization in Asia. Phillip Lowe however states that if these changes persist, Australia’s economy is likely to do very well in the years ahead (Lowe, 2010). The government of Australia has prepared itself for any changes in Asian markets. This has been ensured through government’s deficit reduction which creates a balance between lowering the public debt and the need to manage any adverse effect on its economic growth. The government’s plan is to maintain short term surpluses which will ensure that the country is in a better position to deal with any shock that the economy may experience in the future. The Reserve Bank of Australia coupled with Australia’s rapid monetary policy transmission allows flexibility of the monetary policy such that it can quickly respond to changes in the economic situations. Australia also has a flexible exchange rate which provides a buffer against any shock especially on global commodity demand. Therefore this can ensure easier response to reduction in Asian demand (Plumb, Kent & Bishop, 2012). To respond to increased Asian demand, Australia needs to strengthen its infrastructure and make reforms on regulations. This is because increased demand will see many Asians moving to Australia to set up businesses. Therefore a good infrastructural system will ensure that those businesses are easily accommodated. Proper regulation will also be important to ensure that its investment policies are not violated. Building of surpluses in the Reserve Bank of Australia is also to ensure that there will continued supply of resources even when the demand increases (IMF, 2012). The country will therefore not loose ties with Asia. Australian companies such as BHP Billiton and Rio Tinto Group are among some of the companies that have greatly contributed to economic growth in Australia through mineral exporting business. For example, BHP Billiton through their Olympic Dam project which was aimed at providing more than 10,000 jobs and this would have been a boost to Australia’s ailing construction sector. This would have been a job opportunity for engineers, manufacturers and others in the service industry. Infrastructure expansion at the Olympic dam has also benefited the surrounding townships through supply of electricity. Other benefits include source of revenue to the Australian government through taxation. The company has also invested its significant time, money and resources in various sustainable development programs in Australia. The improved infrastructure benefits the community and households and also ensures sustainable public services (BHP Billiton, 2012). Rio Tinto is a multinational company operating in various countries among the Australia. It is among the world’s leading in production of aluminum, copper, iron, coal and diamond. Its operations in Australia include exporting these minerals mainly to the Asian markets especially to China. It is a provider of diverse career opportunities sin Australia therefore contributing to the economy through employment opportunities. The company is experiencing a growing demand for its minerals and this offers a continued source of revenue to Australia. It has invested a lot in infrastructural development and this has benefitted the people of Australia. The company also offers commercial and Information Technology facilities in various cities with Melbourne greatly benefitting with the shipping facilities. These facilities has contributed to growth of small businesses in some if the cities and thus raising the economic status of the communities (Rio Tinto, 2010). Rio Tinto plans to expand its business with Asia by expanding its iron ore in Pilbara. This [plan will see the annual infrastructure increase to 283M tpa in the year 2013. The company has already approved the feasibility plan for this expansion. The company is planning to boost its capacity by more than 50% and is expecting further growth. This will be the largest mining project undertaken in Australia. With its main exporting market being in Asia, the company is trying to expand its business with Asia (Rio Tinto, 2013). In conclusion, Australian economy has however experienced high growth as a result of its dependence on demand for its resources by the Asian countries. So far there have been no challenges to mention but it is important for Australia to be prepared for any changes in Asian demand. This however calls for the government to come up with policies that will ensure that the country’s economy will remain stable in case of a fall in demand for its resource by Asia. The Australian government has so far taken some measures to prepare for any changes in the economic conditions by ensuing that it has surpluses in the Reserve Bank of Australia. Even though some writers have however warned against this dependence, others have looked at it as a positive economic move. All these considerations must however be considered to ensure stability. Generally, the country has experienced great benefits from its trade with Asia with several established companies that export minerals and other resources to Asia. These companies have benefited Australians through provision of employment, improvement in the infrastructure and also they are great sources of revenue for the country. It is therefore important to ensure that these companies continue benefiting the entire Australian economy through continuously promoting trade between Australia and Asia. References Australia Department of the Prime Minister and Cabinet, 2012, Australia in the Asian Century, Commonwealth of Australia. Rio Tinto, 2010, Rio Tinto approves further US$3.1 billion for expansion of Pilbara iron ore capacity to 283 million tonnes per annum. Retrieved on 16th January 16, 2013 from http://www.riotinto.com/media/18435_media_releases_19683.asp Liew, L. (2010). As Asia’s Quarry: Implications for Australia. Queensland: Griffith University. Lowe, P., 2010, The Development of Asia: Risk and Returns for Australia, Retrieved on 17th January 2012 from http://www.rba.gov.au/speeches/2010/sp-ag-160910.html Hunt, B., 2010, Emerging Asia’s Impact on Australian Growth: Some Insights from GEM, Geneva: International Monetary Fund. IMF, 2012, Strong Commodity Demand, Sound Policies Support Australia, Retrieved on 15th January 2012 from http://www.imf.org/external/pubs/ft/survey/so/2012/car111512a.htm Plumb, M., Kent, C & Bishop, J., 2012, Implications for the Australian Economy of Strong Growth in Asia, Sydney, NSW, Reserve Bank of Australia. BHP Billiton, 2012, Project Justification, Retrieved on 15th January 2012 from http://www.bhpbilliton.com/home/aboutus/regulatory/Documents/Olympic%20Dam%20Supplementary%20EIS/Documents/Chapter%203%20Project%20Justification.pdf Rio Tinto, 2013, Rio Tinto Iron Ore: Expansion Projects, Retrieved on 16th January 2012 from http://www.riotintoironore.com/ENG/operations/301_expansion_projects.asp Read More