Economic Analysis of Australia

Economic Analysis of Australia Table of Contents (Jump to) Introduction Analyzing Performance of Production Output Performance Trends Measures taken by Government to achieve Economic Performance Labor Market Analysis Unemployment Measure taken by Government to achieve full employment Price Level Analysis Inflation Trend Causes of Inflation Government measures for achievement of Stability in Price Conclusion References Introduction Australian economy has been encountering growth which generally emphasizes on low level from claiming unemployment, holding inflation, and low debt obligation for open and a stable solid monetary framework. For quite a while that is around 2012, Australia has been encountering nonstop monetary development for quite some time calculated as 2 decades which is reportedly increasing with 3.5 percent per year. Various assets and energy demand needs has been increasing with a rapid pace from the developing from Asia and China by working on a practical idea of creating a channel that easily carries on with the purpose of investing interest in the resources and at the same time growing them within the commodity. In this essay, monetary execution also known as economic performance of Australia will analysed and various studies will be carried out to get a deeper knowledge of it. Analyzing Performance of Production Output It has been quite a while during 2013, when the Gross Domestic Product of Australia was reported to be a whooping US $ 1560.60 billion. The quality from claiming Gross Domestic Product over Australia has been known to represent 2.52 % share within the worldwide economy. A normal expansion of about US $ 348 billion was reported in the year i.e. 2004 but it reached an astounding level of $ 1560. 60 in earlier years. Concerned illustrations marked a low reach of US $ 18. 60 billion (Zambrano, 2008). Regardless of the monetary tightness and strictness inside the economy, there is degree to the Gross Domestic Product with raise in additional concerns dealing with an idea of raise in economy with the raise in mineral reserves and its exports. (Fig 1: GDP of Australia 2004- 2013) (Source: Office for National Statistics, 2014) Performance Trends Those economy about Australia need been recognized similarly as a standout amongst the greatest capital economy crosswise over the globe. It need been computed that the Gross Domestic Product for Australia for quite a while in 2013 arrived dependently upon US $ 1. 5 trillion. Those downright riches of Australia need been computed toward US$ 6. 4 trillion. In the quite a while i.e. around 2012, its been distinguished concerning twelfth greatest national economy crosswise over those globe Toward the count about nominal amount of Gross Domestic Product. It may be additionally positioned at seventh rank toward the proper estimation for Gross Domestic Product following settling on alterations clinched alongside PPP. This need been computed similarly as 1. 7 % of the worldwide economy Australia is coming under the mark of rank nineteenth constantly the biggest exporter furthermore shipping over the globe (BBC News, 2014). Those administration segment from claiming Australia dominates the w hole economy of Australia that comprises of 68 percentage of the whole Gross Domestic Product. Those stock trade about Australia that is in Sydney need been positioned toward nine rank crosswise over the globe for admiration to promotion for market. (Fig 2: Australian Exports in the year 2006 across the globe) (Source: Office for National Statistics, 2014) Measures taken by Government to achieve Economic Performance In place to guarantee that economy of Australia sits tight great crosswise over those worldwide economy, legislature need to be been a number for activities to incitement about financial development same time providing for sufficient level for help of the worth of effort surroundings too (Zambrano, 2008). Those administration need presently been keeping tabs upon authorities should work greatly for making previous ventures work furthermore divisions about science and various engineering organization should exist on the check list to furthermore enhance the region in order to make smoother moving towards advancement by performing various tasks and doing certain researches. Labor Market Analysis The background about Australia has been known to remain developing during an unfaltering position for quite a while around the year 2003. The rate from claiming unemployment has been known to setting off by the rate of 6 percent and is continuing to slow down till the present time. (BBC News, 2014). The patterns clinched alongside unemployment from claiming specific states alternately locales might not influence the experience of Labour market crosswise over the whole range about Australia. Sydney should bring more level rate for unemployment in examination for different zones or locales. However, despite the fact that those rate for unemployment need been low Since the time that the end about money related crisis, those unemployment rate for different created nations need aid still easier. This states that there is at present extent for Australia to enhance this rate. Unemployment Unemployment will be a state during which people who need aid eager to worth of effort come up short to search for proper occupations. This may greatly prove to be an unfriendly condition that not only have enormous effect on the lifestyle for people yet it proves to be a hazard on the whole economy also. Clinched alongside attention with those sorts from claiming unemployment, it has been seen that the most of the Australian population dives through issues claiming cyclical unemployment (Rogers, 2013). This hazardous process usually takes place when the whole economy may be at a level of decrement. It may also be caused when there is a decline in the demand of nominal goods that prove to be bringing an increment in the economy. Australia is known to be suffering from confronting issues as big as structural unemployment. Measure taken by Government to achieve full employment For admiration to the issue from claiming unemployment, the legislature of Australia need o produce a frictional arrangement working towards good of the citizens (Bremner, 2007). This specific approach should focus with reducing activities that basically causes diminishment of societies. It can be done by claiming strict qualities for connection with points of interest instead of complaining about unemployment. A centralised data of skilled people and various companies should be made to enhance the job and employment process. This particular idea usage has been proving fruitful to labourers and workers that need aid while searching for occupations to an animated. Price Level Analysis Inflation Trend Those rate of inflation for the year2014 in the second quarter has been computed toward 3 percentage (BBC News, 2014). In the case of Australia, those rate of inflation contributes in the assessment of a fact that the climb in the price of a commodity that has to be beard and paid by a normal purchaser. Products like tobacco and alcohol have seen a price rise in some of the considerable years that have passed. (Fig 3: Inflation Trends in Australia) (Source: Office for National Statistics, 2014) Causes of Inflation The principle foundation behind sudden rise in inflation is because of sudden cost increment in raw petroleum that in the end prompts a value rise in vitality charges and foreign merchandise (Bremner, 2007). Other reasons that had been recognized are basically concerned with expanded costs for import, expansion in the rate of backhanded taxes, and increasing rate of labour toward government Government measures for achievement of Stability in Price There comes a point when there is an event of negative pattern inside inflation, there would possibilities that there will a chance to be a decrease in the trade rates. This is on account of the brokers will start those deal of cash that will prompt a diminishing scenario in the exchange rates. This is the reason why legislature of Australia initiates drifting trade rates that serves for reversing once again the real level from claiming interest. Conclusion The economy of Australia has been experiencing regular growth and featuring low level of unemployment, containing inflation, very low debt of public and a stable and strong financial system. The economy of Australia has been identified as one of the biggest capital economy across the globe. It has been calculated that the GDP of Australia for the year 2013 has reached up to US $ 1.5 trillion. In consideration with the types of unemployment, it has been seen that the Australian population mostly goes through issues of cyclical unemployment. With respect to the issue of unemployment, the government of Australia has generated a frictional policy. References BBC News. (2014). Korean economy growing at fastest rate since 2007. BBC South Korea. Bremner, C. (2007). Top 150 city destinations: South Korea leads the way. Euromonitor International. Office for National Statistics. (2014). Gross Domestic Product: Preliminary Estimate, Q1 2014. Rogers, S. (2013). Deficit, national debt and government borrowing how has it changed since 1946?. The Guardian. Zambrano, J. (2008). World's Most Economically Powerful Cities. Forbes.      Economic Analysis of Australia Economic Analysis of Australia Australia has had a good track record of prudent fiscal policy, strong macroeconomic management and performance, and good financial regulation over the years but most importantly all through the global economic crisis. In fact compared to other OECD countries it’s weathered the current crisis extraordinarily well. In 2012 the Gross Domestic Product (GDP) in Australia accounted for 2.45% of the world economy at 1520.60 billion US dollars. Since 2008 its economy has grown by 14.3%. If we take a look at Australia’s GDP per capita, the biggest rally is in 2009 if you measure it in US dollars. Where growth since 2007 is 42% compared to 24% using nominal Australian dollars. If we take inflation into account and look at Real GDP, which is a more realistic view as it’s used to define the standard of living; Australia has increased by 5% since 2007. Relative to the UKs decline by 6% during the same period, this is an outstanding result. Growth of Australia GDP per capita (2007=100)    2006 2007 2008 2009 2010 2011 2012 2013 Real (A$) 97.4 100.0 100.5 110.1 101.3 102.2 104.1 105.4 Nominal (A$) 93.3 100.0 107.1 107.0 114.0 119.6 121.1 124.4 Nominal (US$) 83.3 100.0 108.8 101.0 125.0 147.2 149.6 142.6 Data source: IMF Australia’s economy is dominated by its services sector, yet its economic success is based on its abundance of agricultural and mineral resources. Mining, including oil and gas, accounts for 60% of Australia’s exports and over 10% of its Gross Domestic Product. Source: Australian Government, Dept. of foreign affairs Australia’s close proximity to China and its strong demand for commodities has also helped with the mining sectors rapid growth in the last 10 years. The expansion in the mining sector has had a knock on effect to other related sectors which have grown rapidly on the back of it mining equipment, technology and services (METS), education exports, construction and financial services. Australia’s terms of trade rose to an historic high in to 2011 mainly due to high global prices for its exports such as Iron ore and coal. Australia acknowledges and it’s been well documented that the mining boom is over its peak and mining related investment is expected to fall dramatically. Therefore, Australia is building a sophisticated services export, converting its natural advantages in mining and agriculture into a wider knowledge-based, diversified and service-oriented economy. Although some sectors unrelated to mining have struggled with Australia’s strong exchange rate, unemployment, albeit edging higher , remains at a low level, inflation is within targets and public debt is low relative to other OECD countries. Over the medium term the biggest external risk to the Australian economy is a slowdown in growth in China and a related fall in commodity prices. As outlined in the table below over 50% of its exports were shipped to China, Japan and Korea in 2012-2013, if demand from these markets were to fall dramatically it could be detrimental to the Australian economy. Australias main export destinations 2012-13 (e) (f) 1 China 31.60% 2 Japan 18.80% 3 Republic of Korea 7.70% 4 India 4.60% 5 United States 3.60% Source: Australian Government, Dept. of foreign affairs Between 2008 and 2013 the Australian government took a number of steps to boost trade and investment, among these they reduced taxes on imports and simplified the screening process for foreign direct investment. Because of these alterations to policy Australia is 4th in OECD for ease of trade and investment flows, behind only the Netherlands, Poland and Belgium. As pointed out by Brian Aitken, IMF Mission Chief to Australia- â€Å"Australia’s flexible exchange rate provides a buffer against shocks and the authorities have both monetary and fiscal policy space to react if the outlook deteriorates â€Å" (Australia on Path to Broader-based Growth, IMF Survey, February 12, 2014). The government aims to reach a fiscal surplus over the medium term and have put strategies in place to do so. Which will put them in a position to take the necessary steps; they believe, to counter act damage to their economy. As noted above, Australia has a flexible exchange rate which means that the Reserve Bank (RBA) is able to react to shocks in the market by altering its independent monetary policy. As outlined in the graph below its exchange rate main trend has been growth since 2008/2009 with a slight decline in value recently. This strong exchange rate has boosted household income because of cheaper imports however it has had an adverse effect on the international competitiveness of manufacturing firms – particularly the car sector, education and tourism sectors. All that said, as outlined in the OECD Economic Survey 2012; â€Å"The Stronger exchange rates together with capital-goods investment have increased imports and thus widened the current account deficit.† In the IMFs Article IV the economists are noted to believe that â€Å"despite some recent depreciation , Australia’s exchange rate is still moderately overvalued and is weighing down non-mining activity. â€Å" Unlike most OECD countries the Australian Banking Sector has continued to perform well, has kept pre crisis profits through 2008 to date, and continued to be rated favourably by international rating agencies, current rating AAA. Their exposure to the stressed banking sector in Euro zone is low and the Australian governments’ priority is to help preserve the banking sector as this will aid them in accessing international capital markets with relative ease. In February 2012 the government implemented a deposit guarantee scheme for all bank deposits up to 250,000 AUS dollars which will fully protect 99% of deposits in any Australian bank. Over the last 12 months Australia has seen an upsurge in the housing markets, mainly concentrated in the major cities where house prices rose by 10%,the highest yearly growth in four years. This in turn has led to an upsurge in the construction sector, which had previously been weak. However, it is not envisaged that construction of new homes will meet demand which could attribute further to house price acceleration. Household credit has remained moderate; however, Australian government and banks need to learn from its peer’s mistakes in OECD and guard against the effect a sudden drop in house price which could mean a reduction in consumer confidence and an impact on economic activity. Some point to Australia’s tax system as a major contributor to the house price surge, record low interest rates are being paid on savings and very attractive tax concessions being offered to property investors such as negative gearing and capital gains discount. However high taxes and charges on new homes, a difficult planning process and the urban consolidation policies are driving costs higher, which in turn is helping to further inflate house prices. That said, despite growth in the housing market being largest since 2009, there had been a decline in housing prices in 2011 2012 totaling 4.2% similar to the decline in 2008, so an increase was expected by most .The labour market is also effecting house prices with unempolyemnt rising and people moving mainly to the cities to get empolyment, a factor which is attributing to both house price and rental market increases. Another contributing factor is Australias population growth and immgration. In 2009 the popluation grew by 2%, over half of this was net migration alone. On the back of demand for new homes economists expect an increase in the construction sector in 2014 to help boost economic growth. Already Australia has seen an increase in the approval of residential homes, January alone seen an increase of almost 7%, which puts the annual growth rate at 34.6%. Australia’s unemployment rate climbed to a 10 year high in January 2014 6%, a 2% increase since 2008 that said it is low compared to other OECD countries which are still feeling the effects of the Global Financial Crisis. In the recent IMF Article IV report WA Chamber of Commerce and Industry chief economist John Nicolau said of these figures that the states economy remains buoyant despite the jump in unemployment. Weve got employment growth of around 16,500 new full-time jobs in this last month alone, coupled with 9,000 the month prior, he said. â€Å"That’s the strongest two-month period of employment growth in this state for six years (abc.net.au, 13th March 2014). Unemployment Rate 2008 – 2014 Unemployment Rate versus other Economies This year already new jobs have been generated and filled, approx. 50,000 in February, but the unemployment rate of 6% remains static as there was a 0.2% rise in the proportion of people in work or looking for it the participation rate now stands at 64.8%. February 2014 marked the 15th consecutive month where unemployment grew less than the size of the labour force. The inflation rate in Australia has remained relatively low in recent years (table below), down from 4.4% in 2008. This is consistent with the central bank’s objective of an average inflation rate of between 2% and 3% a year. The Reserve Bank of Australia (RBA) expects that inflation will stay at or below this until at least mid-2015, with wage growth forecast to remain contained. Historical Inflation Rates (2008 – 2014) Year mar Jun sep dec Ann 2013 2.5% 2.4% 2.2% 2.7% 2.5% 2012 1.6% 1.2% 2% 2.2% 1.7% 2011 3.3% 3.5% 3.4% 3% 3.3% 2010 2.9% 3.1% 2.9% 2.8% 2.9% 2009 2.4% 1.4% 1.2% 2.1% 1.7% 2008 4.3% 4.4% 5% 3.7% 4.4% Source:rateinflation.com Last year, 2013, Australias inflation rate moderate to around 2.2% 2.5%, and has been broadly stable since, reflecting ongoing strength in the Australian dollar, broad-based competitive pressures within the domestic economy and subdued growth in costs. The absence of high inflationary pressures is another aid so the government can alter monetary policy as and when it needs to in order to help guard the economy against risks. The Australian cash rate fell from 7% in 2008 in response to the Global Economic Crisis; the Reserve Bank of Australia cut interest rates by 4% between September 2008 and February 2009 in response to the slowdown of their economy – an effect of the Global Financial Crisis. RBA cut interest rates again in 2012 in response a worsening outlook to the global economy and signs of their own weakening labour market. The cash rate now stands at 2.50%, the lowest on record. However, this is expected to edge higher this year as growth is expected to strengthen helped by the low interest rates and inflation is expected to stay within target of 2%-3%. In the long run an increase in interest rates could help the spiraling house prices in the major cities come back to more realistic valuations. A new government was voted into Australia in September 2013 and they are preparing for their first budget in May. The budget deficit for 2012 – 2013 was 2.6% of GDP an increase from 1.3% in 2008- 2009. Top of the new government’s agenda is to tackle public debt, and they are being very vocal in pointing the finger of blame at their predecessors. Of the 17 top surveyed IMF countries, Labour left us with the fastest growth in spending of anyone in the world and they left us with the third highest growth in debt of anyone in the top 17,( Mr Hockey, Treasurer, abc.net.au,13th March 2014) Their aim is to return their budget to surplus and maintain a budget surplus going forward; to do this a huge cut in spending will be needed. As highlighted in the IMFs article IV; â€Å"If tax revenue is held at its average level over the last decade, the resulting budget deficit in 2023/24 would reach 2 percent of GDP. Reaching the government’s budget surplus target would thus require cutting spending by around 3 percent of GDP, either by reducing net non-social spending or by putting in place policy measures to contain increases in social spending†( IMF Article IV, 2014) Consumer confidence has been low, Consumer spending was held back in 2013 because of uncertainty around the government election in that September, high household debt, and uncertainty in the economy. In the year to June 2013 retail sales growth rates were at their lowest rate in 51 years, rising just 2.5% from the previous year. Because of this consumers have increased their saving rates since 2007 and reduced their demand for loans. Although household debt is high, Australian households seem to be able to meet this debt with only 1% non-preforming house loans and 50% of owner occupiers repaying ahead of their mortgage schedule. Compared to other OECD countries tax to GDP in Australia is low. Since 1965 Australia has ranked in the bottom third of OECD countries and in 2010 it ranked fifth lowest over all. Tax-to-GDP ratio for OECD countries, 2010 Source: OECD Revenue Statistics, 2012. Of the OECD countries Australia also has the third lowest level of taxation on personal income which includes social security taxes and taxes on payroll. Tax revenue (% of GDP) in Australia Source: tradingecomomics.com In 2008 tax revenues were steady at approx. 24% however as a result of the Global Economic crisis tax to GDP fell to approx. 20% in 2010 – 2011 since then total taxes have recovered one third of the lose but are still not back at 2008 level. Australia’s tax components are very similar to other OECD countries but with one major difference, Australia is one of two countries in OECD which do not levy social security taxes. Conclusion: Over all the Australian economy has performed very well since 2008, mainly because of its mining sector and related industries. The big challenge ahead is whether and how quickly it can adapt to mining construction falling. Home building and mining exports could help boost the economy and drive economic growth in the medium term. Now that the election is over and there is renewed demand for housing could be indicators of a boost consumer confidence and help the consumer start to spend again. If interest rates remain low this will help stimulate discretionary consumer spending and dwelling construction. Unemployment is still low at 6% compared to Australia’s OECD peers and new jobs are being generated, aided by a rise in demand for new housing. The main internal risk to the Australian economy is that the new government may be too aggressive in reducing government spending in their aim for budget surplus however this effect could be lessened by a further cut in interest rates. The main external risk to the economy as outlined already is Australia’s reliance on the Chinese market and commodity prices. Chinas growth rate is currently at approx. 7%, their government are implanting fiscal stimulus which should boost economic growth which will have a positive effect on the Australian economy as there will be continued demand for commodities to be exported to China. This may also affect the demand for housing in Australia as Chinese investors buy to rent, thus boosting the employment sector. The Australian banking sector is strong and both domestic and international markets have fate in it, it is one of only eight sovereigns globally to be rated AAA with a stable outlook by all the major credit rating agencies. This is a huge endorsement on the Australian Economy. If any shocks were to apply to the Australian Economy, its government are one of few globally that have the fiscal and monetary policy that will enable them to adapt very quickly. Australia’s economic performance to date has been the result of good structural reforms, demand for commodities and sound macroeconomic policies, hence the IMF forecasting â€Å"annual average GDP growth for Australia of 3.1% between 2013 and 2018 – the highest growth forecast among major advanced economies† (IMF, World Economic Outlook, April 2013). Bibliography IMF, Article IV Australia, 2013 OECD, Ecomonic Outlook Australia, 2012 Macrobusiness.com Tradingeconomics.com GFmag.com Reserve Bank Australia Business.nsu.gov.au Abc.net.au