Australia's Economic Resilience

This assignment examines Australia's economic performance following the Global Financial Crisis (GFC) of 2008-2009. It analyzes the strategies implemented by the Australian government to mitigate the crisis's impact, explores the role of the mining boom in driving economic growth, and investigates Australia's international trade relationships, particularly with China. The goal is to understand how Australia achieved sustained economic expansion despite the global downturn.

ECONOMICS
Growth Trends in Australia
STUDENT ID:
[Pick the date]

Growth Trend in Australia
The objective of the given exercise is to analyse the growth trend in GDP which has been
apparent in Australia between 2005 and 2015. In order to achieve the same, the GDP growth
rate has been captured in the form of the following graph.
From the above graph, it is apparent that the highest growth by the economy has been
witnessed during 2006-2007 especially from Q3 2006 tom Q2 2007. The de-growth in GDP
or negative GDP growth has been witnessed only in two quarters namely in Q42008 and
Q12011. For other quarters in the period, the GDP growth has been positive even though at
times it has been below 1%. Further, the growth pattern does not show any major trend as
periods of growth and decline have been scattered rather intermittently. However,
considering annual GDP growth rate, it would be fair to opine that 2005-2007 period
witnessed quite robust growth with 2008-2009 being challenging during which the GDP
growth rate declined.
However, the recovery of the growth rate in the economy was visible from 2010 onwards
when growth started picking up which was especially visible from Q2 2011 onwards. But
after a recovery in the growth, it is apparent that growth in the recent years has not been
robust and there seems to be slowdown that is being observed in the economy. This is also
represented by the high volatility in the quarterly GDP growth which during a stable period
must indicate a consistent growth which seems lacking. Therefore, for summarising the above
growth trend, it would be appropriate to comment that the growth trend has lacked

consistency and has been quite choppy with a particular broad pattern being visible for only
couple of years. Also, high variation in the quarterly growth rates is visible.
Reasons for growth rate variation
One of the key factors which accounts for the variation in growth rate of Australia during the
concerned period is the rapid growth of China in the 21st century and the resultant mining
boom that Australian has witnessed. The rapid growth witnessed by China fuelled by the
boom of the manufacturing sector meant that China required incremental natural resources
particularly in the form of iron ore and coal so that more steel can be produced which can
then be used for the manufacturing industry. Due to unprecedented double digit growth rate
witnessed in China, there was a significant uptrend in the demand for various raw materials
which led to a surge in the commodity markets (Holmes, 2012). As a result, from 2004
onwards, there has been a significant increase in the mining related investment which has
been a man driver of growth for the Australian economy as is apparent from the following
graph (Tulip, 2013).
It is apparent from the above graph that during the period from 2005-2008, there were robust
investments in the mining sector backed by the firm commodity prices which began surging
on account of the Chinese demand. There was a minor decrease in the investments during
2008-2009 owing to global financial crisis which adversely impacted commodity prices
owing to slowing demand of products from the West leading to lower production in China
and consequently lower demand for various commodities. However, the Chinese economy
showed resilience against the global financial crisis and hence the surge in commodity prices

continues from 2010 onwards which led to increase in investments in mining. These
investments peaked in 2012-2013 post which there has been a decline as signs of slowdown
are visible in China owing to which the commodity demand is slowing and hence caused the
commodity prices to crash. This explains the lacklustre growth witnessed from mid-2013
onwards as the contribution of the mining industry to the GDP is quite substantial (Tulip,
2013).
As a result of the investments in mining, development has been brought in far flung areas in
Australia due to enhancement of mining activities. Also, there have been major changes in
the trade pattern which China emerging as the most significant trade partner leaving behind
Japan in 2007-2008. The growth importance of China in relation to the exports from
Australia is also apparent from the following graph (MR, 2017).
The above graph clearly indicates that from 2005 onwards till 2014, the exports to China has
become five times or an increase of nearly 400%. This has been a pivotal factor for the
growth witnessed in Australia. Also, this has led to the creation of a trade surplus which is
highlighted in the following graph (OEC, 2016).

It is apparent from post 2005 there is a surge in exports which is led by the mining boom
which is responsible for the trade surplus. Additionally, due to robust economic growth, there
was a currency appreciation of AUD before 2008 which favoured imports particularly in
manufacturing which was catered to by China considering the low labour cost. Also, in order
to further boost the trade with China, a FTA or Free Trade Agreement was enacted between
Australia and China (Tulip, 2013). The decreasing exports observed from 2014 onwards
above also can be explained on the basis of end of mining boom due to lower demand from
China (Towers, 2017). Hence, it is apparent from the above discussion that one of the main
reasons for variation in growth rate has been the rise and fall of the mining boom. In the
aftermath of this mining boom end, the government has enhanced the focus on the services
sector along with other primary products which also tend to have a competitive advantage
over other nations. However, manufacturing owing to the higher labour costs is not a sector
which can drive exports.
Another key aspect that merits discussion is the Global Financial Crisis (GFC) and the
underlying impact on Australia. The impact of the recession was felt in Australia also with
an adverse impact on the savings of the consumers as the equity markets were hit leading to
fall in share prices. Also, there was lowered spending from consumers owing to low
confidence which adversely impacted the private spending in the form of investments.
Further, the ongoing capacity utilisation was also adversely impacted leading to higher
unemployment and lower disposable incomes. Besides, there was a correction in the
commodity prices as the demand of various commodities lowered due to which the net
exports of the nation were adversely impacted. Clearly, this led to reduced aggregate demand
which resulted in lowered inflation along with lowering of the GDP growth rate (ABS, 2010).

However, the impact of GFC was rather limited on Australia in comparison to other
developed countries primarily because of two main factors. One was the strong fiscal
situation of the country going into the crisis. The fiscal deficits owing to the trade surpluses
were quite lower in comparison to other nations. Also, the sovereign debt was maintained at a
much lower level which provided the government with higher flexibility in providing higher
economic stimulus (Pickering, 2014). Further, the banking system of Australia was quite
robust due to which there was no need for the government to provide fiscal stimulus and
hence the government could instead focus on the economy as a whole rather than a sector in
particular. The second factor was the quick recovery of China which was responsible for the
high growth observed from Q2 in 2010 to Q1 2011 (Alexander, 2013).
The response of the government to the crisis was measured and the government aimed to
maintain a balance between inflation and the downside risks posed by the GFC. As a result,
the government proposed a 2008-2009 budget which had a projected surplus of A$ 20 billion
so that the future ability to avert the crisis is not jeopardised. Further, a slew of measures
were taken to provide confidence to the financial sector. This included government
guarantees in relation to the deposits, wholesale funding, purchase of mortgage based
securities to the extent of A$8 billion and also banning short sales in certain financial
instruments. This ensured that the confidence of the people in the financial sector did not
dwindle and also there were not any financial defaults in this regards (Kennedy, 2009).
Further, measures were undertaken to enhance the overall consumer confidence so as to
enhance the demand from consumers and thereby ensure that economic growth is maintained.
This included payment of $ 4.9 billion to pensioners along with $ 3.9 billion to families
belonging to low and middle income group so that they can continue their purchases of basic
necessities. Further, the traditional monetary policy tools and fiscal stimulus was also
observed. The policy rates were lowered so as to ensure that liquidity remains in the system
and also the loan rates are low. Also, fiscal stimulus to ailing businesses in the form of tax
rebates was extended so that they can witness the difficult times. Overall, the financial
policies exhibited by the government during the crisis were quite effective and free from
excesses which ensured quick recovery unlike other western nations (Australian Government,
2009).
Major Challenges

While the Australian economy remained quite unscathed in relative terms during the GFC,
however, a bigger crisis seems to be looming at the present for the Australian economy. The
major reason for the same is the temporary end in mining boom and the need to find
alternatives to fill the gap which is pivotal considering the cyclical fluctuations in price of
various commodities. Since finding alternative customers to China is next to impossible,
hence the policymakers feel that there is a strong case for diversifying the economy lowering
the dependence on mining. However, this is easier said than done.
One of the major challenges in this regard is the ailing manufacturing industry which over the
decade has largely been overrun by Chinese goods due to which the industry has further
dwindled Owing to the FTA with China, the trade barriers have been practically nullified
which has led to surge in imports of textile and electronic goods particularly computed. Also,
the car industry is at the verge of closing down with the government not willing to extend
financial support any longer. Also, considering the low population of Australia coupled with
the geographical isolation, it is apparent that the manufacturing industry would find it
difficult to thrive without government support. The economies to scale are difficult to achieve
and hence companies worried about costs set their plants in Asia while the high end
manufacturing happens in US and Europe where market availability is plenty (Tulip, 2013).
Coming to services, the local markets seem quite saturated and the potential source of growth
seems to be only foreign markets. Again penetration in the foreign markets (both developed
and developing world) is quite difficult owing to the existence of a number of players. One
service where Australia has an edge is education which needs to be promoted further but it is
unlikely that would bring in so huge gains that the economy can be transformed. Also,
considering the geographical isolation, the export of services would involve migration of
trained manpower to far off countries with significant differences in culture and history. The
primary sector with livestock products also has potential but owing to the increasing changes
in climate, this is increasingly a challenge as there is inconsistency in the production. Further,
there are alternate players from the developed and developing world from which Australia
has to be face fierce competition coupled with higher logistics cost which leaves the Australia
exporters at a disadvantage.
Hence, on the basis of the above discussion, it is apparent that while GFC has been averted
by the economy but going forward there is a need to diversify the economy which is quite
difficult. The local demand remains saturated owing to limited population and the

geographical isolation of the countries implies that tapping the export markets is a challenge.
Going forward, the policy makers would have to work out sustainable solutions to these
issues so as to push the Australian economy forward and reduce their inherent dependence on
mining and China.

References
ABS (2010) FEATURES ARTICLE: THEGLOBAL FINANCIAL CRISES ANDITS IMPACT
ON AUSTRALIA. Retrieved on October 22, 2017 from
http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/1301.0Chapter27092009%E2
%80%9310
Alexander, D. (2013) How Australia weathered the global financial crisis while Europe
failed. Retrieved on October 22, 2017 from
https://www.theguardian.com/commentisfree/2013/aug/28/australia-global-economic-
crisis
Australian Government, (2009) PART 2: THE GOVERNMENT’S RESPONSE TO THE
GLOBAL FINANCIAL CRISIS. Retrieved on October 22, 2017 from
http://www.budget.gov.au/2008-09/content/myefo/html/part_2.htm
Holmes, A. (2012) Australia’s economic relationships with China. Retrieved on October 22,
2017 from https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/
Parliamentary_Library/pubs/BriefingBook44p/China
Kennedy, S. (2009) AUSTRALIA’S RESPONSE TO THE GLOBAL FINANCIAL CRISIS.
Retrieved on October 22, 2017 from
https://static.treasury.gov.au/uploads/sites/1/2017/06/Australia_Israel_Leadership_For
um.pdf
M.R. (2017) How Australia has gone 25 years without a recession. Retrieved on October 22,
2017 from https://www.economist.com/blogs/economist-explains/2017/03/economist-
explains-11
OEC, (2016) Australia. Retrieved on October 22, 2017 from
http://atlas.media.mit.edu/en/profile/country/aus/
Pickering, C. (2014) Lessons for Australia from the GFC. Retrieved on October 22, 2017
from http://www.theaustralian.com.au/business/business-spectator/lessons-for-
australia-from-the-gfc/news-story/f6a0682272988717ad5b5d7c919190d7
Towers, C. (2017) The end of a mining boom leaves Australia’s economy surprisingly intact.
Retrieved on October 22, 2017 from

https://www.economist.com/news/asia/21718521-investment-mines-dries-up-
property-takes-up-slack-end-mining-boom-leaves
Tulip, P. (2013) The effect of the mining boom on the Australian Economy. Retrieved on
October 22, 2017 from https://www.rba.gov.au/publications/bulletin/2014/dec/pdf/bu-
1214-3.pdf