GDP of Australia

Question: Look at Australia economy and discuss their GDP in the last 2 - 5 years and what are the factors affecting their GDP? Answer: The Gross Domestic Product (GDP) is the monetary value of all the final goods and services produced within the country in the current financial year. The GDP determines the economic growth of a country. Per capita GDP is defined as the amount of output or GDP accruing to each person in the entire population. It is calculated as: GDP/population size. The per capita GDP is an indicator of the standard of living of a country. There are various factors that affect the GDP of a country. There are demand side factors as well as supply side factors. Interest Rates: Investment which a component of GDP inversely depends on the interest rate. A lower interest rate would encourage investment thereby augmenting the GDP of the economy. Asset Prices: When asset prices rise, it generates a positive wealth effect. This induces people to spend more on consumption because the value of their existing assets rise. Exchange Rate: A depreciating exchange rate makes exports cheaper and imports dearer. Hence, generally the volume of imports falls and that of exports rises (the extent of rise depends on the elasticity of demand and supply). This should boost the GDP of the economy directly. However, there are a few indirect effects as well and the final effect on the GDP is determined by the combined influence of all the parameters. Consumer Confidence: When consumers and firms are confident about the future, they will consume and invest more which will increase the GDP of the economy. Real Wages: When real wages increase, either due to an increase in the nominal wage or due to a fall in the price level, this generates an income effect increasing their purchasing power. Thus, they will demand more consumption goods and hence generate aggregate demand for the economy. Infrastructure: When the infrastructure of an economy improves, it makes production more efficient and hence augments the GDP. Technology: Technological improvements increase the labour productivity of an economy. Hence, the marginal product of labour improves and given that employment remains unchanged, the output also increases. Commodity Prices: Price level is a major determinant of the GDP of an economy. This is because prices determine the supply and demand conditions. Rising prices would reduce demand, decreasing the aggregate demand. Moreover, since GDP is the monetary value of goods and services and the price level determines the monetary value, the GDP is primarily influenced by commodity prices. The GDP of Australia as of the current financial year (2015-2016) is $1.62 trillion. It is ranked 12th according to the nominal GDP and 19th according GDP PPP. As of 2015, the per capita GDP is $64,500 USD. It is ranked 5th and 16th with respect to nominal and PPP GDP respectively. The service sector is the primary sector of the Australian economy. It contributes around 58% of the GDP. The other sectors are retail trade (5%), mining (7%), construction (9%) and manufacturing (7%). The inflation rate (CPI) is around 1.7%. The labour force registers a number of 11.9 million as of 2016. Out of the labour force, 75% is employed in the services sector, 21.1% in industry and 3.6% in the agricultural sector. The unemployment rate is around 5.7% (2016). The primary industries of Australia are mining, industrial and transportation equipment, food processing, steel and chemicals. The mining and agricultural sectors are the main export sectors of the economy. The mining sector contributes majorl y to the growth and sustenance of the Australian economy. The GDP of Australia in the past 5 years (2010 2014) is shown as follows: YEAR GDP 2010 911304031484 2011 932989069867 2012 966881953234 2013 990474347265 2014 1015234732343 This is represented with the following graph: As is evident from the above graph, the GDP of Australia shows an increasing trend over the years concerned. The rise has been smooth and consistent. The growth rate of GDP reflects the economic performance of a country over a time period. The GDP growth rate of Australia for 2010 to 2014 is shown as follows: YEAR GDP GROWTH RATE (%) 2010 2.0182 2011 2.3796 2012 3.6327 2013 2.44 2014 2.4999 This is illustrated in the following graph: The GDP has grown in the financial year 2010-2011. Then from 2011-2012, the growth rate of GDP has risen steeply to as high as 4% but only to fall in the next financial year. Thereafter, it has become constant at around 2.5%. The GDP per capita is shown below: YEAR PER CAPITA GDP 2010 41363.22 2011 41763.12 2012 42540.97 2013 42845.49 2014 43256.48 This is shown in the following graph: The per capita GDP has increased over the years and quite consistently. This indicates a consistent standard of living of the population. The growth rate of per capita GDP is shown as follows: YEAR PER CAPITA GDP GROWTH RATE 2010 0.443578 2011 0.966807 2012 1.86253 2013 0.715833 2014 0.959239 This is represented in the following graph: The per capita GDP has increased smoothly from 2010 to 2012. However, it then registered a very steep fall in the financial year 2012-2013. Thereafter it has increased but not to the initial extent. Factors Affecting the Gdp of Australia One of the principle variables affecting the GDP development rate in the Australian economy is the steady work era that has occurred in the economy in the course of recent years. As new occupations are made, increasingly individuals get utilized. This thusly prompts the expansion in yield from the supply side. Once more, when these individuals begin gaining or procuring more than they were winning prior, their utilization and venture request increments. This supports up the total interest and thus increases monetary development from the interest side too. The lessening in unemployment in the Australian economy is one such proof for the GDP development being an aftereffect of occupation creation. On the other side, when unemployment expands, the GDP development backs off from both the supply side and the interest side of the economy. In this way work or unemployment is a main consideration influencing the GDP of Australia. Wage development is an essential element in deciding the GDP. As wages develop, the GDP builds on account of an interest side help that expands the total interest. Be that as it may, rising wages likewise interpret into rising costs and this may pull down interest. The finished result relies on upon the relative impacts. Different financial and money related strategies embraced by the administration of Australia impacts the growth rate. Financial reforms have likewise a significant part to play. In any case, the blasting mining area ingests the business cycle stuns shielding the economy from vulnerability. An occasion of this is the adaptability reflected by the Australian economy amid the Global Financial Crisis in light of the fact that the stun was consumed generally by the mining area. Commodity prices is another segment of the GDP that impacts the GDP all things considered. Australia being an exporter of mining and agricultural items, faces international prices concerning the same. As costs of these items fall in the universal business sector, it adversely influences the fare division consequently obstructing the GDP development. Then again, interest for fares additionally rise when costs fall. So a definitive impact on GDP is controlled by the relative changes in costs and request, that is, the value flexibility of interest. Over the previous decade, Australia has encountered a precarious increment in the terms of exchange basically because of expansion popular for iron metal and coking coal from China. Australia is an exporter of mining and agricultural items. On the global front, the economy has encountered impressive fare blast. Global trade being an essential GDP segment influences the GDP figures of the nation. The mining business of Australia is probably the most productive in the world and steady development in this part adds to the developing GDP of the economy. Notwithstanding that land interests in certain parts of the nation has demonstrated fruitful prospects in the course of recent years. Work profitability is likewise an essential variable that the nation has favourable position over and which helps the GDP develop. Investment, both domestic and international, is an essential determinant of GDP. The Australian economy for the most part procures interest in the mining segment. In any case, rising trust in the non-mining parts offering approach to rising speculation can elevate the economy all things considered. Credit development in the business segment of Australia has expanded which is a positive sign for the economy. The Australian economy has thus fared reasonably well in the past few years. Moreover, the recent months have seen drastically falling unemployment rates that has boosted the confidence of the economic agents. The economic growth has been consistent with no major fluctuations in the economic conditions. References convictcreations.com 2016, The Post-Socialist and Post-Capitalist Australian Economy, viewed 7 May 2016, theconversation.com 2015, Budget explainer: the forces influencing Australias economy, viewed 25 May 2016 Downes, P Hanslow, K and Tulip, P 2014, The Effect of the Mining Boom on the Australian Economy, Sims, R 2013, Australias experience driving economic growth through competition policy reforms, viewed 7 May 2016.