When addressing the economy of any country, it is imperative to highlight some of its basic details such as its geographical location as a way of hinting one on its accessibility as a fundamental determinant of its economy. The paper focuses on Australia, which is an island continent and a country that is located to the southeast of Asia. The continent borders Timor Sea, Arafura Sea, and Torres Strait to the north.
It also borders the Coral and Tasman Seas to the east. On the southern side, it borders the Bass Strait and the Indian Ocean. Australia is the smallest continent in the world. However, it is the sixth largest country in the world. The capital city of Australia is Canberra while the largest city in Australia is Sydney. Australia is an independent country that is also a member of the commonwealth nations.
The country is made up of six states that are further divided into Northern Territory and the Southern territory. With this mind-catching information in mind, one would wish to know the country’s economic status. The economy of Australia is one of the best performing economies in the world.
The country has experienced a continuous economic growth over the years. Surprisingly, even when other large economies were affected by the economic recession between 2007 and 2012, Australia’s economy remained prominent. Waterhouse (1999, p.23) argues that Australia’s economic development has been associated with the adoption of very prudent economic policies by the country.
Others have attributed this development to the high discipline depicted by the economy. There has been a remarkable uniformity in the growth of various variables of macroeconomics in Australia. Economic growth in Australia is distributed among industries, states, and population. The population of here has grown significantly with the economy growing by over double digits.
Hence, the rate of unemployment has been reduced over the years. Howard (2010, p.8) points out that the economy of Australia is operating at a point of near full exploitation and that more extensions will need to be done to expand it further. The paper discusses various macroeconomic variables ranging from Gross Domestic product, trade flows, and unemployment together with their impact on the economy of Australia.
The macroeconomic data analyzed by this paper is derived from the performance of the economy of Australia between 1980 and 2012. However, it will begin by present a brief overview of the Australian economy.
Background of the economy of Australia
The economy of Australia has experienced an upward growth and slow downs. However, it is worth noting that, although the economy slowed down or stagnated at some points in history, there was not a single moment when this economy turned negative. In 2009, the growth rate in Australia fell to as low as 0.7%. Keith (2009, p.409) observes that the growth rate also went down to as low as 1.4 percent in 2001.
These downturns were to the positive side of the economy standards. As such, they may not have had a big negative impact though they overall hit the economy to some extent. Economic slowdowns in Australia resuto lted in increased unemployment levels in the periods when they happened. In the History of Australia, the longest continuous economic development period spanned from 1991 to date.
The other similar period of continuous development was the thirteen-year period between 1961 and 1974 though less, than the current growth trend, which has lasted for more than 20 years. However, in the two periods, growth has had a positive, impact on trade flows, employment, and GDP.
It is worth noting that the economy of Australia also experienced growth in the 1970s and 1980s though such growth was met by economic recessions after every eight or seven years meaning that economic growth was not continuous: it had various interfaces of disruption, which are blamed for slowing down economic development in the country.
It is worth noting that Australia is ranked among the most developed economies in the world. When compared to other developed economies, it is notable that there is no other developed economy that has had a continuous growth for 20years. This achievement makes the economy of Australia unique. Most of the developed economies have not been able to resist economic recessions.
Howard (2010, p.8) points out that most of the developed economies have experienced double periods of economic recessions, which have negatively influenced their economic development. The most hardly hit variable is employment. The rate of unemployment has been on the rise in most developed nations. However, Australia has been able to maintain a steady positive economic growth for the last 20 years.
International trade in Australia has continued to rise over the years with notable hiked levels of trade flows in the economy thus making it grow by a double-digit every year. The increased need for industrial law materials by nations like China, which produces large quantities of industrial goods, has continued to raise trade flows in Australia. Australia has had what China required for its industries.
Therefore, since the two countries are proximately located, trade among them has also been favored by geographical location. Mining and industry have become the most successful business endeavors in Australia.
Trade flows have also increased because other developed economies have invested heavily on agriculture hence facing competition in the market. Australia’s mining and industrial sectors are therefore not faced with stiff competition in the market. The decline of some economies like those of Japan amongst other countries that were earlier on a threat has also worked to the success of Australia.
Other Asian economies have also been hard hit by the economic crisis; hence they do not pose a big threat in the market for Australia. Following the Asian and the European crisis, most of the developed nations have either experienced slow growths or negative growth. Trade flows in Australia have remained high due to the high levels of economic flexibility that is depicted by the economy of Australia.
Such flexibility has worked to ensure that the fluctuations in th,e international exchange rates do not affect the economy of Australia in a negative manner. Trade flows have been properly checked by the high floating ability of the Australian dollar. The Australian dollar has been able to rise and fall as other external currencies do. Such flexibility has cautioned Australian’s domestic market from negative effects of economic recessions.
Australia is a stable economy that has been an outstanding producer of various primary products like wheat, wool, dairy products, and meat. The greatest support to this economy has been the wool, which has been on the helm of the Australian economy since the colonial period. Wool was also very important in making agriculture the largest economic driver in Australia. However, various other industries also came up in the 1940s.
For example, manufacturing industries were developed. Waterhouse (1999, p.23) affirms that the manufacturing industry developed rapidly between 1940 and 1970. It is also worth noting that mining also began to develop to a powerful industry in the 1960s.
These industries are still stable today. In fact, the returns that the economy is gaining from mining and industries went above that of agriculture in the recent years. Demand for industrial and mined products has increased over the last two decades.
Major trading partners with Australia have continuously increased their demand for industrial and mined products. For example, Japan has doubled its demand for mineral ores. Price fluctuation in the world economy has also worked to the benefit of the economy of Australia. Development of the mining and industry sectors in Australia has also been associated with the high competition on agricultural products in Europe and America.
The world development in technology has also necessitated the need for industrial products from Australia. A good example of how the economy of Australia has developed from an agricultural economy to an industrial and mining economy is the economic development results of the year 2006. In 2006, the annual budget of Australia comprised 202.8 US billion dollars for revenue and 188.6 US billion dollars in expenditure.
The Gross Domestic Product of this year was 780.5 US billion dollars. The GDP was arrived at from a composition of 69.6% from services, 27% from mining and manufacturing industrthe y out of which 12.40 was from manufacturing. Agriculture provided for 3.3% of the GDP.
From the statistics, it is arguable that agriculture has been overcome by industry and mining in supplying to GDP. Between 1991 and 2010, GDP growth varied across the board. Changes in Gross Domestic Product has been because of variation in various sectors of income generation that feed the economy of Australia. For example, the manufacturing industry had declined in terms of GDP from 14.0% in 1991 to 9.4% in 2010.
The mining industry had increased in terms of GDP from 5.0% in 1991 to 7.7% in 2010. Gross Domestic product from agriculture and fishing has also decreased from 3.3% in 1991 to 2.6% in 2010. From these examples, it is evident that there have been variations in GDP in various variables of the economy. The unemployment rate in Australia is very low.
For example, the unemployment rate in Australia in 2006 was at 5.4%. In the same year, 10.5 million people were employed. In Australia, employees receive sickness and unemployment benefits. They also receive compensation when they are injured on the job. The government has also set a minimum wage for employees and marginal awards. All employees also receive health and social benefits from their employers by law.
Keith (2009, p.409) affirms that the basic wage for employed people is adjusted according to the standards of living. In fact, it was to be adjusted by a quarter of any rise, or decrease in the cost of living in 2006. Howard (2010, p.8) points out that the economy of Australia has been able to create 3.5 million employments to its citizens from June 1991 to date.
With the increased employments in the economy, the per capita and income levels in different households have gone up by 30% in the same period. The employment rate has therefore been on the rise over the years. The average growth of employment has been at 2% every year since 1991.
Growth of employment rate has been above that of the population. Consequently, an increase in the population that is within the working bracket has also led to a decline in the rate of unemployment in the economy of Australia
Overview of important macroeconomic variables (e.g., GDP, unemployment, and trade flows
Various economic variables have contributed to the growth of the economy of Australia over the years. These variables include trade flows, Gross Domestic Product (GDP), and employment. The following is an overview of these variables.
Unemployment
Within the span of 20 years, the rate of unemployment has dropped from 9% in 1991 to 5% in 2010. Decrease in the levels of unemployment has been evenly distributed across the six States of Australia.
The high level of economic development in Australia has provided jobs to many citizens in the economy. Decline in the rate of unemployment has resulted in raising the living standards of most citizens in Australia. This rise is perhaps why no citizen in Australia is living below the poverty line. The 3-5 million jobs created between 1991 and 2010 are impressive owing to the population of Australia.
Creation of employment by the government has also led to the improved per capita income of various households in Australia. The purchasing power of the citizens of Australia has also been raised with provision of jobs for the citizens. When citizens have the power to purchase, they are able to make their economy more stable since domestic and foreign trades are nurtured.
Australia has a 1.4% share in world total merchandising export and a 1.28% export share in the total world commercial services. The total export from commercial activities is 1.28%. The current account balance of trade in Australia is the US $73.2 billion. The total export of goods and services in Australia is 19.8%. Australia exports commodities such as iron ore, gold, meat, alumina, coal, wheat, telecommunication gadgets, petroleum, and oil.
Australia imports various commodities from different countries in the world. The major import partners to Australia are China, the United States, Singapore, Japan, and Germany.
Australia is ranked the 20th most competitive trade country meaning that the level of business competition is very high. With high competitiveness in business, the economy of a country develops faster.
Macroeconomic analysis of the economy
Gross Domestic Product analysis
The Gross Domestic Product of Australia has never swerved to the negative since she got her independence in 1901 from the United Kingdom. Although the economy has experienced economic slowdowns severally, it has managed to float through various recessions.
For example, the economic recession in 1991 led to a drop in the GDP of Australia. It is also out of this economic recession that the rate of unemployment experienced a sharp rise. Such economic slump led to low Gross Domestic Product in the world and consequently in Australia. Also, it should be noted that the economy of Australia experienced a decline in its economic activities in 1991.
Slowdown in major economic activities such as mining, industry, and agriculture led to the famous economic downturn in 1991. Consequently, it resulted in low GDP and a heightened rate of unemployment. However, after the 1991 economic depression, Australia has not experienced a decline in Gross Domestic Product of such nature again. It is also worth noting that the rate of employment has been on the rise since 1991.
The year 1991 formed a good foundation for the economic prosperity that Australia has experienced over the last 20 years. Jonson (2001, p. 39) points out to the fact that, although there was another economic slowdown between 2000 and 2001 that pulled the economy to 1.4%, it did not have serious economic drawbacks in Australia.
Regardless of any economic slowdowns in Australia, economic development remained on the positive edge all the time. This case is unique since many economies were pulled to the negative side by economic recessions.
From the bar graph 1.0, it is evident that the Gross Domestic Product of the economy of Australia has been on the rise since 1980. The graph indicates that at no one point did the GDP assume a negative trend. However, it is worth noting that the Gross Domestic product was rising at higher rates than in others in some economic periods. It is also worth noting that other economic periods were marked by slow growth although this did not turn to the negative.
Graph 1.0 indicates that economic period from 1980 to 1985 the GDP grew by 31 billion dollars. This case was a sharp growth experience within these five years. Therefore, between 1980 and 1985, the economy of Australia was growing at an average GDP of 6.2% every year meaning that it was looking up and that returns from internal markets were high.
In the next period of five years lasting from 1985 to 1990, the economy grew by 131 billion dollars. This outcome was a higher leap than the previous economic period of five years. It is deducible from graph 1.0 that the economy of Australia was growing at an average of 26.2 billion dollars every year between 1985 and 1990.
However, between 1985 and 1987, the economy experienced very low growth due to the economic changes that were taking place in the country. For example, the GDP was $180.6136 billion in 1985. By 1986, the GDP was at $181.9866 billion. One could, therefore, detect a very low economic growth in a period of one year.
The rise went up higher though at a low pace to $188.95 billion in 1987. Jonson, (2001, p. 39) argues that the impact of economic recession in the euro zone had begun to creep slowly into Australia although the economy of Australia had put on mechanisms to enable it to float the impacts of world economic recession.
Changes in economic activities were also slowly beginning to affect the economy of Australia hence the slow economic development. In the next economic period of five years, the economy of Australia experience both slowdowns and rise. For example, the economy of Australia experiences a slowdown in the year 1991. The previous sharp rise was made to be moderate.
For example, the previous raise experience between 1988 that rose sharply from $188.9518 billion to $299.7565 billion in 1989. Graph 1.0 indicates that this trend went slow between the period lasting between1991 and 1991 where the Gross Domestic product rose slowly from $311.4544 billion to $326.195 billion. This rate was slower than expected owing to the trends in the preceding period.
From the same graph 1.0, one also realizes that the GDP of Australia staggered back from the 1991. In 1991, the GDP was $ 326.195 billion dollars though it went back to $325.6049 billion in 1992. This trend was worrying in a developing country.
Nonetheless, it has been associated with the world economic recession that was taking place around this period and the change in the economic activities of the Australian economy. It is worth noting that Australia began capitalizing its efforts on the manufacturing industry producing telecommunication gadgets and accessories. It is also in this period that the country was planning its mining programs.
The sharp turn from the competitive agricultural-based economy was still affecting the decisions made by the major drivers of the Australian economy. It was out of such economic developments that the economy of Australia experienced slowdowns in the early 1990s.
In fact, between the period of 1992 and 1993, the economy dropped its GDP from $325.60 billion to $ 312.322 billion. However, the economy increased its GDP in the following year. From 1993, the economy began to experience a sharp rise again. By the year 1995, the Gross Domestic Product had risen to $368.59 billion.
In the following five-year phase, the economy experienced a sharp rise in the immediate first portion of the phase. For example, graph 1.0 indicates that the GDP rose sharply with a $67 billion mark between the year 1995 and 1995 meaning that, within two years, the economy had raised its GDP with a $67 billion index. One can infer that the economy was growing its GDP with an average of $33.5 billion in every year between 1995 and 1997.
However, the trend looked down again in the following period immediately after 1997. For example, the economy had dropped the Gross Domestic product to $399.7456 billion by 1998. By 1999, the Gross Domestic product of Australia had gone down to as low as $ 389.4749 billion. The table 4.0 indicates that it would only rise again in 2000 before going back to the slowdown trend again.
Keith (2009, p.409) affirms that the economic speed bumps are attributed to the happenings in the world economy. It is also worth noting that most of the countries that Australia traded with, for example, Japan and India, were hard hit by the economic recession. The impact of such a recession was the low purchasing power by the affected economy. Hence, they slowed down trade.
Although Australia has never been completely affected by economic recessions in her neighborhoods, she also suffers when her trading partners are affected. However, Australia has well-devised mechanisms to make her dollar float on any economic recession that affect other economies in the world.
Employment
In Australia, the rate of unemployment is very low. In fact, there is not a single family that lives below the poverty line. However, the period between the year 1980 and 2010 has a lot for economists to learn. For example, the number of men that were in employment in the period between 1980 and 2000 reduced from 82% to 77%. On the other hand, the percentage of women who were employed rose from 47% to 61%.
This trend is still on the rise. It is crucial to the point that the number of employed people in Australia was 6.1 million only in 1980. In 2000, the number of employed people had risen by 46%. In the year 2000, 8.9 million people were employed. The other common trend is that the employment rate for the employees that were aged between 15 and 64 years rose from 65% in 1980 to 69% in 2000.
Nonetheless, the high rate of employment in Australia can be used to explain the reason as to why the income levels of the people are high, the living standards of the people are high, the social levels, and the economic stability of the Australians are high.
When individuals experienced good economic standings, the family and the whole economy are stabilized. In economics, one can also interpret high employment rates to translate to high-income tax levels. When income taxes are high, the unemployed people can also benefit from such returns.
From the table and the line graph above, one can deduce a lot of economic information concerning employment rates in Australia. The rate of male employment has experienced a downturn while that of the female has experienced an upward trend. In the early years of 1980s, the economy experienced decline and small rises in employment rates. For example, between the year 1980 and 1985, the rate of employment had decreased by 3%.
This case can be attributed to the economic recession that was being experienced by Australia’s trading partners. In the next five years between 1985 and 1990, there was an increase in the rate of employment from 53% to 55%. This finding means that the economy also experienced some upward growth.
The economic developments happening in Australia within this period led to the rise of employment levels that translated to the upward growth of the country’s Gross Domestic Product. Between 1990 and 1995, the economy experienced a decline in the number of employees that it was able to hire. In 1990, the employment rate was 55% though it declined to 51% in 1995.
The economic recession that had affected Australia’s trade partners in 1991 led to this sharp decline. In 1991, the economy of Australia experienced a complete slowdown in development. The blow of this slowdown translated to high rate of unemployment. However, the next period of five years experienced some slow growth from 51% to 52% rate of employment.
The period from 1980 to 2000 generally experienced a decline in the level of employment. The reconstruction of industries in Australia happened in this period. This case may reveal the decline in the rate of employment from 82% to 77%. However, the slowdown in employment began to look up in the year 2008. In 2008, the rate of employment had gone down to as low as 11.8%.
The trend began rising over time. For example, the rate of employment rose from 11.8% to 16.9% between 2008 and 2009. A sharp rise in employment was then experienced again since the economy was now stable and that the industry sector was set. Reconstruction into industrial based economy was already beginning to yield fruits. The employment rate rose again between the year 2009 and 2010 from 16.9% to 20.4%.
One can deduce that the economy of Australia was looking up again during this economic period. More people were employed. Hence, the living standards of the citizenry were being improved. Consequently, the economic standards of Australia were improving. It is worth noting that, as the line graph 1.0 indicates, between 2010 and 2011, the economy began to grow with a double-digit every year.
For example, the graph shows that employment rates rose from 20.4% in 2010 to 22.9% in 2011. The trend has since continued over the last three years. For example, between 2011 and 2012, the rate of employment grew from 22.9% to 24%. Again, the graph indicates that the economy had grown its employment ability with a double digit.
From the chart above, the service industry is the highest contributor to the economy of Australia. Service industry comprises infrastructure 11%, construction 8%, trade and other services 24%, banking and finance 14%, public service 16%, and ownership of dwellings 8%. The above information can also be represented in the pie chart below.
Pie chart 2.0 segments of the service industry and their percentage out of 80% of the total share in the service industry.
From the above two pie charts, the economy of Australia is currently based on the service industry. In the previous years, the economy of Australia depended largely on Agriculture. Today, agriculture comprises as little as 3% of the total share of the economy. Manufacturing comprises a small segment of 9% while mining makes 7% of the total share of the economy.
Australia’s economy is, therefore, a service-based economy. According to the pie chart 2.0, trade and other services comprise 24% of the service industry. One can, therefore, deduce that the economy of Australia is highly dependent on trade. Trade controls the largest share of the economy. In the service industry, Australia has been exporting services such as education and training.
For example, in the year 2009, the export of educational services catered for 32% of Australia’s export. In the 1980s, Australia made huge steps in economic reforms. Out of the economic reforms of the 1980s, trade and business in Australia were activated.
From the 1980s, the amount of direct investments from Australia has gone up. Australia has been undertaking foreign investments in countries such as the United States, New Zealand, and other nations within the euro zone.
In the foreign market, Australia has been able to take a considerable share. For example, the line graph below illustrates the trade share that the economy of Australia has taken in various years in the near past.
Line graph 5.0 Australia’s trade share in the world economy between 2009 and 2011.
From the above line graph, it is evident that Australia’s trade share increased between 2009 and 2010. There was a rise in trade share from 1.258 in 2009 to 1.455 in 2010. In 2011, this share decreased with a very low margin. One can, therefore, argue that the economy of Australia controls a considerable percentage of the world economy. However, from line graph 5.0, Australia’s trade share decreased from 1.455 to 1.198.
This case is attributable to the declining economic trends in the world due to the high economic recession. Although the economy of Australia has been able to float and avoid the current recession, its trade share has been affected. The effects of various trade partners being affected by the current economic recession must have trickled the economy of Australia.
Recommendations
The economy of Australia can be improved from its current position. The government of Australia should put in place more mechanisms to protect the economy from the impact of the economic recession in the world. Although Australia seems like it is seamless and impermeable to economic recessions affecting the world economy, it is worth taking precautions.
Australia has a low dependence on exports, a well-fledged housing sector, and a healthy banking sector. Jonson (2001, p. 39) argues that the economic recession happening in the world is a course to worry for Australia. The current increase in job loss can affect the economy negatively.
The second step that the government of Australia needs to take is to minimize the increasing number of unemployed persons in the country. Australia should, therefore, come up with strategies to ensure that citizens retain their jobs, and to create new jobs for them. It is also important for the government of Australia to assist its trade partners in the region to address the problem of loss of jobs.
Keith (2009, p.409) argues that the impact of unemployment in the neighboring countries is likely to affect Australia’s economy negatively. Australia can address this problem by creating more jobs and employing more people from the region. For Australia to continue enjoying high economic development, it must ensure that it is building competitive skills to handle the various economic challenges ahead.
Australia should, therefore, train job seekers, students in schools, and other training institutions on how to develop the economy further. Capacity building courses should also be encouraged for the working citizens. Finally, Australia should reduce the impact of social exclusion on the poor and vulnerable families.
The country can do this task by providing youth allowance fund, dealing with the current housing crisis in the country, offering childcare support for these families, and providing guidance on investment and wealth creation to these families.
Conclusion
In conclusion, the market in Australia is one of the most developed economies in the world today. Upon analyzing various macroeconomic factors that influence this economy, the study realized that the economy had experienced both sharp developments and slowdowns at various intervals since 1980.
The study focused on various microeconomic factors including employment, Gross Domestic Product (GDP), and trade flows. It was realized that the economy of Australia has a Gross Domestic Product of $1.586 trillion today. The rate of unemployment in Australia is not high. However, various mechanisms need to be put in place to ensure that the current rising trends of unemployment are abhorred.
The rate of employment in Australia is relatively high though there has been an increase in the share of employment that is being occupied by women than that of men. The economic recession affecting the rest of the world is also affecting the economy of Australia since most of its trade partners have been hard hit.
However, the economic preparations that were made in the early 1980s have been able to caution the economy of Australia from the impact of the economic recession affecting America, Europe, and Asia. At several intervals, the GDP of Australia experienced slowdowns. In 1991, such a slow down resulted from the change of industry and the economic recession that was occurring in the world then.
Although, Australia has invested in America, Europe, and Asia, it does not rely so much on foreign investments. However, the impact of economic changes in those nations affects their trade share. Australia controls a considerable share of the world economy.
The study also notes that the economy of Australia is in the verge of being affected by the economic recession in the world where its unemployment levels will rise steadily with its venerable citizens pulling down the economic growth that she has experienced over the last 20years.
The paper recommends several measures including enactments of employment reforms and youth allowance funds, provision of childcare and housing facilities for the venerable, guidance on investment and wealth creation, and establishment of more jobs, and training the unemployed to impart skills for self-employment. Through these recommendations, the economy of Australia will sail through the economic downturns affecting great economies.
Reference List
Howard, J. (2010). The Transformation of the Australian Economy. Quadrant Magazine, 54(3), 8-10.
Jonson, D. (2001). The Economic Downturn. Quadrant Magazine, 45(5), 39.
Keith, S. (2009). The Continuing ‘Wonder Down Under’. Contemporary Review, 291(1695), 409-416.
Waterhouse, R. (1999). The Vision Splendid: Conceptualizing the Bush, 1813-1913. Journal of Popular Culture, 33(1), 23-34.