Australias Economy - Case Study Example

Topic: Australia’s Economy Student’s name Course name Institution’s name 15th October 2011 Introduction Australia is a country located in the Southern Hemisphere. Australia is made up of the mainland and the islands such as Tasmania. The country is ranked sixth in the list of the largest countries in the world in terms of total area (Denison et al, 2000). The neighbouring countries to the north include Papa New Guinea, East Timor and Indonesia. To the north-eastern part of Australia the neighbours include Vanuatu, Solomon Islands and New Caledonia. To the south-eastern part of Australia the neighbour include New Zealand. The country is characterised by a stable political system which has seen the country grow economically from one level to the other since the federation of the six colonies that formed the Commonwealth of Australia in 1901 (Denison et al, 2000). The largest population of the country’s population lives in the urban parts of the country and the youths make the largest segment of the population that lives in the urban parts of the country. Australia is ranked thirteenth globally in terms of the size of the economy. In terms of per capita income Australia is ranked seventh in the world (Denison et al, 2000). Among the developed nations, Australia ranks highly in other economic aspects and performances such as health, quality of life, economic freedom, education, political rights and civil liberty protection. Among the major organizations of the world, Australia is a member of OECD, WTO, G20, UN, ANZUS, APEC, Common wealth of Nations and the Forum of Pacific Islands. The purpose of this paper is to explore the aspects that characterise the Australian economy such as Gross Domestic Product, Gross National product, Consumer Price Index (to mention a few). a) Australia’s GDP and GNP from 2007 to 2010 (US$bn) Year 2007 2008 2009 2010 GDP 954.5 1060.7 987.1 1238.0 GNP 2,400 2,450 2,860 3,860 (Australia Fact Sheet, 2011) Gross National Product figures are in trillions of dollars b) Australia’s Consumer Price Index (CPI) and Inflation rate Year 2007 2008 2009 2010 CPI 157.95 164.825 167.825 172.6 Inflation rate 2.3324% 4.3526% 1.8201% 2.8452% (RateInflation, 2011) c) Australia’s unemployment rate Source: Australia Economic News (Source: Australia Economic News) d) Australia’s Per Capita Income Year 2007 2008 2009 2010 GDP Per Capita 23871 24335 24350 24000 (Source: Australia economic News, 2011) e) Historically, Australian government has aimed at achieving three main economic objectives. They include external balance, internal balance and economic growth within its economy. These three objectives are perceived as important aspects in achieving sustainable economic growth, low foreign liabilities and debts as well as low inflationary rates (Navarro, 1998). It is imperative to note that the business cycles that occur in the international market causes disparities in the level of economic growth in any given economy and Australia has also been a victim of the business cycles witnessed in the international market. In order to ensure sustainable growth demand is influenced by minimising the effects of the business cycles in the economy. The objective is to maintain inflation rates at the lowest possible levels as well as lowering rate of unemployment in the country. Both the supply-side and the demand-side tools are applied in the economy because no single-side can be used exclusively alone without the other (Navarro, 1998). The macroeconomic policies used by the government include the fiscal and the monetary policies. The fiscal policy involves the application of the budget to achieve the intended objectives. This is done through variation in the amount of government revenue and spending. This alters the level of activities that take place in the economy (Navarro, 1998). Specifically, the government uses the fiscal deficit, fiscal surplus and the balanced budget measures to regulate the level of economic activities in the economy. To stimulate growth, expansionary fiscal measures are adopted where the government increases its level of spending in the economy and reduces the amount of taxation (Navarro, 1998). In order to slow down the level of economic activities in the economy and reduce the amount of foreign liabilities and debts contractionary measures such as reduction in government spending are undertaken. The monetary policy involves the actions undertaken by the Reserve Bank of Australia (RBA) to regulate he availability of money in the economy. In order to stimulate growth, RBA lowers the interests’ rates in order to encourage borrowing and thus increase investment opportunities in the economy (Navarro, 1998). Additionally, the RBA also tightens its monetary policies such as reducing the rate of money supply in order to reduce the rate of inflation in the economy. f) Neo-liberalism is the political economy that characterises the Australian economy. This is the school of thought that is based on numerous ideas such as economic freedom, free markets, economic liberalization, globalisation, free trade and a mixed economy (to mention a few) (Sharieff, Masood & Balakishan, 2007). It is also a school of thought characterised by great participation of the private sector in the economy. The historical reason for this is that the effects of the Second World War affected to the economy of Australia significantly and the recovery process was slow. The public sector policies adopted by Australian government did not considerably improve the economic conditions of Australia (Sharieff, Masood & Balakishan, 2007). Hence, the private sector was perceived as the roadmap through which considerable achievements in the economy could be achieved and hence neo-liberalism was adopted in the 1980s in order to pave way for greater participation of the private sector in running the economy. g) Australia belongs to a number of economic organizations and groupings such as OECD, WTO, G20, UN, ANZUS, APEC, Common wealth of Nations and the Forum of Pacific Islands. h) The Australian dollar is pegged at 1.02525 against the American dollar. This is a depreciation of the Australian currency against the US dollar which has been witnessed in the recent past. This trend has been witnessed mostly in the current year 2011 because in the third quarter of 2010, the Australian dollar was pegged one-to-one with the US dollar. i) Australia is endowed with vast resources with mining being the primary industry in the country. In this regard, Australia is a net exporter of a wide range of minerals raging from coal, iron, uranium, Nickel, petroleum, aluminium, lead, zinc, diamonds, Gold, natural gas, alumina (to mention a few) (Sharieff, Masood & Balakishan, 2007). A part from the resources that are mined and extracted from the natural ores, Australia is also endowed with other living resources such as sheep which provide large amounts of wool for export to other foreign destinations. A part from wool other products include mutton, beef, sugar which are exported to foreign markets. Tourism is also another major resource in Australia contributing significantly to the GDP of the country (Sharieff, Masood & Balakishan, 2007). Mining alone contributes more than 5.5% of the country’s GDP. Australia is ranked first in the list of coal exporters globally which means that the country has vast reserves of coal. The gas reserves in the country are estimated to be more than 150 trillion cubic feet which forms a significant amount of gas reserves that can serve the current population for more than 100 years. A part from mining and farming, tourism is another major resource in Australia. Tourist attraction sites such as the Great Barrier Reef, Tropical rainforests, Gold Coast, Wildlife, Whale Watching and Sunshine Coast (to mention a few). Tourism accounts for more than 20% of the country’s GDP due to the extensive tourist attraction sites found in the country which attracts numerous visitors annually (Sharieff, Masood & Balakishan, 2007). The major trade partners include China which is the greatest importer of coal and other minerals as well as Japan and India. j) It is evident that Australia’s economy is on an upward trend in terms of economic growth as can be seen from the Gross Domestic Products and the Gross National Product data above. This has been reflected on GDP per capita data which reveals the fact that the per capita income has been on the rising trend. Increase in per capita is a reflection of a strong purchasing power among the Australian citizens (Auerbach 2002). However, the inflationary rate is not favourable because it has been on the rising trend except for the year 2009. In this respect, the rising inflation has eroded on the purchasing power of the consumers because inflation results into expensive products and services in the economy thus increasing the amount of consumer disposable income diverted to consumption rather than savings. It is also evident from the data above, that the rate of unemployment has been on the increasing trend which shows that the number of skilled, knowledgeable and qualified Australians seeking for employment has been increasing annually but the rate of creation of jobs in the economy has not matched the increase in the number of qualified people in the job market (Auerbach 2002). In this regard, a number of suggestions can be provided with regard to the country’s economic policies. First, the expansionary measures through the fiscal policy should be enhanced in order to stimulate further growth in the economy. This can be done through increased government expenditure and reduction in tax as well s increase in subsidies in order to expand the economic activities in the economy so that more job opportunities can be created (Auerbach 2002). Second, the government should adopt the monetary policies such as reduction in money supply in the economy by increasing interests’ rates to discourage borrowing in order to reduce the rate of inflation in the economy (Auerbach 2002). This would minimize the erosion of the purchasing power of the consumers and thus increase the amounts of savings. As a result, more investment opportunities would be created because many people would invest their savings and thus increase the number of job opportunities in the economy. Hence, the problem of unemployment and inflation in the economy can be solved through expansionary and contractionaly policies. k) One of the key competencies of the Australia that makes it competitively advantaged is that it is a net exporter. This is made possible through the vast resources the country is endowed which increases its foreign reserves. Increase in strategic reserves means that the country is able to import capital goods to increase production in the economy. The second key competency of the country is vested in its currency. The country has a strong currency against major currencies such as the dollar which makes imports cheaper and thus domestic producers and manufacturers purchase capital goods from other foreign markets cheaply. The third competency of the country is vested in its trading partners. One of the significant trading partners is China with a vast developing economy which provides a ready market for resources from Australia such as coal, petroleum, Zinc, gold and many other resources used in many industries in China. Other significant trading partners include Japan and India which also provide a significant market for the resources from Australia. Works Cited Auerbach, A. ‘Is there a role for discretionary fiscal policy? University of California, Berkeley, 2011. Australia Economic News (2011). http://www.tradingeconomics.com/australia/unemployment-rate Australia Factsheet. http://docs.google.com/viewer?a=v&q=cache:OcF9GfU7Hg0J:www.dfat.gov.au/geo/fs/aust.pdf+Australia%27s+GDP+from+2007+to+2010&hl=sw&gl=ke&pid=bl&srcid=ADGEESh6CCkfWo2sBcCF5w3q5ZnkhVgHj40IEH1WSgZ0BSXnf11qzNg2nCj1UHdKYY45nVZTrTNgQaXLXoIDgwfbg_fwElQwvigtqX0b4YAHD69eagCbY8MgjOdZ57QaGEewffI_UhbI&sig=AHIEtbTxBgdw1AU_tDwSGaSJNZSFvz06NA&pli=1, 2011. Denoon, D, et al. A History of Australia, New Zealand, and the Pacific. 2000, Oxford: Blackwell. RateInflation. http://www.rateinflation.com/inflation-rate/australia-historical-inflation-rate.php?form=ausir, 2011. Navarro V. Neo-liberalism, "globalisation", unemployment, inequalities, and the welfare state. International Journal of Health Services 1998, 28(4):607-682 Sharieff, A., Masood, A., & Balakishan, A. Encyclopedia of World Geography: Volume 23, Australia and its Geography, 2007. New Delhi: Sarup & Sons. pp. 13–14. Read More