Economic Growth in Australia

Question: Write an essay about the economic growth in Australia. Answer: Introduction The economic growth in Australia is uninterrupted for the last 25 years (Austrade.gov.au 2016). The country has witnessed tremendous economic growth in terms of Gross Domestic Product (GDP), Gross National Product (GNP) and other parameters (Salahuddin et al. 2015). Australia is the worlds 12th largest economy and demonstrates high levels of productivity (Austrade.gov.au 2016). The country is known for the largest pool of funds. The country is an important contributor to essential sectors like education, agribusiness, mining, tourism, wealth management and others, which are the major drivers of global growth (Austrade.gov.au 2016). The GDP growth of the country is predicted to be 2.9% (approx) in between 2016 and 2020 (Austrade.gov.au 2016). The country witnessed a 3.3 % growth in GDP per annum in between 1992 and 2015 (Austrade.gov.au 2016). This paper explores the economic growth of Australia during the last 5 years. The paper also describes the positive as well as negative effects of the economic growth on Australia. Discussion The increase in the market value of various goods as well as services produced by a particular economy over a certain period of time is known as economic growth (Hatfield-Dodds et al. 2015). The economic growth is measured in terms of gross domestic product or GDP. The growth of the GDP per capita or the per capita income is an important measure of the economic growth of a country. The economy is said to grow rapidly when the increase in the growth is caused by efficient utilization of the raw materials like physical capital, labor, materials, energy and others (Wiedmann et al. 2015). In the world of economics, the economic growth refers to the degree of the growth of the potential output. The highest production at the level of full employment is essential. The growth is usually calculated in terms of real variables like inflation adjusted terms (Rba.gov.au 2016). This is done in order to reduce the distorting outcome of inflation on the cost of the goods that are produced. The natio nal income accounting methods are used for the measurement of economic growth (Rba.gov.au 2016). The per capita GDP growth is calculated based on factors such as labor productivity, intensity of work, number of hours worked, participation rate of the workers and the demographical factors (Rba.gov.au 2016). The Australian economy is one of the most growth oriented economy of the world (Law and Singh 2014). The economy has displayed tremendous positive performance in the last twenty years. Australia is proud to be one of the worlds most developed progressive economies. The economic growth of the Australian economy can be dated back to early 1990 (Rba.gov.au 2016). There is not any single country in the world, which has enjoyed uninterrupted growth over a span of twenty years (Rba.gov.au 2016). This extended period of economic growth is rare even in the case of most developed countries. The Australian economy can be seen to be dominated by the services industry and the degree of economic success can be measured by the abundance of mineral and agricultural resources (Law and Singh 2014) . The natural wealth of the Australia is the basis for the export of primary products. The GDP of Australia increased by 1.1 percent in the first quarter of 2016 (Rba.gov.au 2016). The consumption expenditure increased by 0.7 percent, which contributed 0.5 percent to the growth of GDP. The household spending increased by 0.7 percent and the government expenditure increased by 0.9 percent in the first quarter of 2016 (Rba.gov.au 2016). The exports of goods increased by 4.4 percent and the net exports contributed around 1.1 percent to the GDP growth in the first quarter of the financial year of 2016 (Rba.gov.au 2016). Fig: Economic growth of Australia over the years Source: (Rba.gov.au 2016) The above graph shows the rising nature of the GDP of Australia over the years. It shows that the growth has been steady and constant over the years. The overall growth in GDP was 0.5 percent in the year 2013 (Rba.gov.au 2016). The GDP growth rose to 0.9 percent in the year 2014. The year 2015 witnessed an annual growth of 0.8 percent in the first quarter (Rba.gov.au 2016). It witnessed a tremendous growth of 1 percent during the last quarter of the financial year 2015 (Rba.gov.au 2016). The graph has been continuously rising high, which showcases the persistent high economic growth of the country. The first quarter of 2016 demonstrated a GDP growth of 1.1 percent and it is expected that the GDP growth would break all the earlier records within the end of the financial year 2016 (Rba.gov.au 2016). The last financial year, 2015, showed spectacular performance of the GDP in the Australian markets (Rba.gov.au 2016). A lot of factors contributed to the high GDP growth of the Australian economy. The factors included final consumption expenditure, gross fixed capital, net exports, public investment and others. There were certain industries that contributed the highest contributions in the growth of GDP (Rba.gov.au 2016). The industries of agriculture, fishing and forestry contributed the highest contributions in the GDP growth of the nation (Rba.gov.au 2016). There were increased livestock production, mining, gas extraction, coal mining, telecommunication services, real estate services, arts and recreation services and others, which created an excellent impact on the growth of GDP (Ivanova 2014). The largest contributions to the GDP growth was from the financial, mining, insurance, public administration, constructions, social assistance and healthcare services (Downes Hanslow and Tu lip 2014). There are many factors that contributed to this stupendous economic growth. One of the most important factors for the economic growth is the increased flexibility of the Australian economy. The Australian economy has displayed a high degree of flexibility in the last twenty years. This has led to increased resilience to the various types of external shocks that was faced by the country (Adger and Hodbod 2014). There were different types of crisis like the collapse of the dot-com phenomenon, Asian crisis, collapse of the US credit bubble and others (Rba.gov.au 2016). The flexibility of the Australian economy can be attributed to the floating nature of the exchange rate (Plumb Kent and Bishop 2013). The rising and falling nature of the Australian dollar has played a pivotal role in the response to different kinds of external events. In the absence of such controlling mechanisms, there were possibilities of destabilization of the domestic economy (Plumb Kent and Bishop 2013). The Austra lian dollar helped in insulating the domestic economical effects of Australia, especially during the times of dot com bubble and the Asian crisis. The role of the exchange rates in the process of stabilization of the economy can be observed in the recent years also (Towbin and Weber 2013). During the period of 2006-2008, the value of Australian dollar rose sharply in order to combat the issue of rising commodity prices (Garton Gaudry and Wilcox 2012). The economic reform of the floating the exchange rates was one of the most powerful decisions made by the Australian government (Towbin and Weber 2013). There were other economic reforms too, which contributed to the rising economic growth of the country. A wide variety of reforms in the industry and competition policy, which was implemented across several years, resulted in the competitive nature of the business sector (Towbin and Weber 2013). The labor market reforms resulted in the increased flexibility of the labor market to respond to the ever changing economic conditions (Boeri and Van Ours 2013). This regulates the phenomenon of unemployment or any other unsustainable forces (Sonin 2013.). The Australian government took active steps in the reform of the financial systems, which helped in fulfilling the financing requirements of the economy (Ellis Haldane and Moshirian 2014). This also benefitted the Australian economy to attract more number of foreign investors. The bunch of economic reforms contributed to increased productivity of Australia. The economic reforms resulted in the increased business investments as there has been increased number of labors, increased capital and increased level of production. The below graph displays the business investments as a percent of GDP in the Australian economy. Fig: Business Investments in Australia Source: (Rba.gov.au 2016) The disciplined and consistent economic policies made by the Australian Government contributed to the excellent economic growth of the country. The economic policies have prevented the formation of imbalances (Groenewegen and McFarlane 2014). The government finances or budget structures were constantly improved in the last twenty years. This resulted in the sharp reduction of the government debt, which resulted in Australia becoming one of the best developed countries with respect to the government finances Groenewegen and McFarlane 2014). The monetary policy helped the economy to keep a stable environment by maintaining low inflation levels (Smets 2013). The below graph gives an idea of the consumer price inflation, which is an important determinant of the economic growth. Fig: Consumer Price Inflation in Australia Source: (Rba.gov.au 2016) There are several positive effects of higher economic growth on the society (Lewis 2013). It allows the citizens to enjoy greater standards of living and hence there are creations of number of job opportunities. The records show that since 1991, there has been creation of 3.5 million new job opportunities (Rba.gov.au 2016). The income per household has also increased as a result of improved economic growth (Lewis 2013). The below graph shows the rising curve of the employment and the second graph shows the rising household income of the people of Australia (Rba.gov.au 2016). Fig: Rising employment in Australia Source: (Rba.gov.au 2016) Fig: Rising household income in Australia Source: (Rba.gov.au 2016) The higher economic growth implies that the citizens of the country enjoy higher average incomes. This helps the consumers to purchase more goods as well as services. This also enables the people of Australia to enjoy higher standards of living. The country has also seen a dip in the unemployment ratios, which is an important effect of higher economy growth (Lewis 2013). It means that the country is able to produce sufficient jobs for the youths and the working population. The higher economic growth means that there are higher tax revenues. It implies that the country needs not to spend more amounts of finances on unemployment benefits and opportunities for the unemployed (Lewis 2013). As a result of this, there is a decrease in the government borrowing. The higher economic growth plays a major role in the reduction of debts to the GDP. The improved public services are a result of the improved economic growth. The government is able to spend more on the public services such as educat ion, national highways and others. The improved economic growth leads to the government spend more on the protection of the environment (Lewis 2013). The government can allocate more resources to do more recycling and the increased use of the renewable sources of energy. The higher economic growth enables investment in a number of industries and sectors, which in turn fills the vicious circle of the economic growth (Lewis 2013). The higher economic growth causes a reduction in the poverty. The government is able to implement improved technology and infrastructure services (Lewis 2013). The government is also able to spend considerable amount of finances in the healthcare sector. There are improvements in the social scenario as a result of the improved economic growth. There are negative effects of the economic growth also. The term creative description is used by the experts to denote the bad effects of the economic growth (Uy Yi and Zhang 2013). It signifies that the higher economic growth can lead to the destruction of the old economic structure. This implies that the productive relationships can be destroyed by the economic growth. The economic growth also leads to a shift in the structure of production (Uy Yi and Zhang 2013). There can be decline in the employment patterns in the agriculture and manufacturing industries (Uy Yi and Zhang 2013). There is also a creation of the national social tension as a result of the widespread structural transformation. There may also be destruction of the relationships between the key entities (Uy Yi and Zhang 2013). There can be new challenges in the healthcare domain also. The health systems are facing complex challenges of ageing population, greater use of new technologies and the increased occurrence of chronic illness (Rba.gov.au 2016). The life expectancy of the people is increasing and hence the effect of increased economic growth is hampered. The increased economic growth may lead to increase in the income inequality in the country. There is inequal distribution of income in the country (Cingano 2014). There can be two extreme classes in the society namely the richest and the poorest. The middle class or the average income holder may get extinct. The income inequality has an adverse effect on the countrys economic and social well being. The various bad effects of the income inequality are economic inefficiency, unfairness to some sections of the society and the underestimation of social stability. The increase in the income inequality leads to reduction in the borrowing of finances (Cingano 2014). This implies that the low income persons are unab le to afford the education of their children, start their personal business or save for their future. The high inequality encourages an increased rent seeking behavior, which diverts vital resources from thee productive purposes. The increased economic growth has led to increased pollution and negative consequences on the environment (Rba.gov.au 2016). The increased economic growth means there is increased spending by the individuals. The increased spending by the individuals implies that there is alarming degradation of the natural resources like water, air and land. There are also phenomenons like air pollution, exposure to toxic chemicals, developing waterborne diseases and others, which are after effects of the higher economic growth. The increased pollution levels leads to greater environmental damage, which increases the probability of natural disasters. Conclusion The economic growth is a vital parameter for assessing the progress of the nation. The gross domestic product is an important measure of the countrys growth potential. Australia has witnessed enormous growth in the last twenty five years. The country is considered as the most progressive nation in the world in terms of economic growth. The Australian economy has displayed positive economic growth over the past twenty years. The country has several factors, which has contributed to the great economic growth. This paper showcases several charts and graphs, which witnesses the rising economic growth of Australia over the past five years. The Australian economy formulated several policies, which proved to be beneficial for the economy. The positive effects of the higher economic growth are discussed in this paper. There are also negative effects of the economic growth, which casts negative consequence on the society. The economic growth is a measure of the overall standard of living of t he people of an economy. It also gives an idea of the government income and expenditure. This paper is aimed at broadening the knowledge base regarding the economic growth of the Australian economy over the last five years. It also gives an idea of the positive and negative effects of economic growth in Australia. References Adger, W.N. and Hodbod, J., 2014. 6 Ecological and social resilience.Handbook of sustainable development, p.91. Austrade.gov.au. (2016).Austrade, Australian Government - Austrade. Boeri, T. and Van Ours, J., 2013.The economics of imperfect labor markets. Princeton University Press. Cingano, F., 2014. 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