Economics Assignment: Australian GDP Analysis Report - ECO101

This report provides an in-depth analysis of Australia's Gross Domestic Product (GDP) over the past decade, examining key factors that have influenced its economic growth. It delves into the methods used by the Australian Bureau of Statistics to calculate GDP, including production, expenditure, and income approaches. The report explores the impact of commodity prices, the development of non-mining sectors, and the role of research and development in sustaining economic progress. It also discusses macroeconomic developments, including the effects of the global financial crisis, changes in household income and wealth, and the influence of fiscal policies. Furthermore, the analysis covers macro-prudential measures, investments in the non-mining sector, and reforms in tax and expenditure. The report also highlights the resilience of the Australian banking system and the overall stance of the Australian economy, concluding with an assessment of its ability to manage fiscal challenges and maintain growth.

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
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Introduction
Gross Domestic Product (GDP) is the most accurate way of measuring the growth rate of
a country. It is the standard practice to calcite the GDP of a country and compares it with others
to get the current economic position of that country. GDP is defined as the total sum of all the
goods and services produced in the sovereignty of a particular country. This report is a
discussion about the GDP rate of Australia dating back ten years from now. Since it covers all
the aspects of economic system it becomes the most prominent indicator of the economy of a
country. GDP data from Australia is displayed by National Accounts and is computed by
Australian Bureau of Statistics which derives its data from System of National Accounts. GDP of
Australia had a moderate growth rate before the economic crisis in 2008 (Al-mulali, Fereidouni
and Sab 2013). Australia is known to be a free and robust market and has been like this since
long. It has almost all the natural resources in abundance complemented by its government
which looks after its economyin a vibrant manner. Presence of efficient legal system and well-
structured bureaucracy has led to the entrepreneurial development of Australia which has kept its
economy in a healthy and prosperous state. Australia has always been the favorite destination for
investors for establishing business ventures and investing in projects of all kinds.As Australian
industries are open to foreign competition and the workforce available in the country is
adequately skilled. Australian government has reduced their interference in many sectors of
economy which has made way for foreign investors to take part in the development of its
economy. In the following report discussion about the GDP and economic growth of Australia is
done with complete analysis.

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Background
Australia has a unique demography which has benefited it in more than one ways. It is a
continent country surrounded by ocean from all its sides. It has been one of the most well-to-do
economies in the entire Asia-Pacific region. It has expanded its economy continuously since last
25 years with some hindrances coming from the global financial crisis in 2008 (Plumb, Kent and
Bishop 2013). But even in those troubled times it came out without much damage. Australian
Labor Government has done some stimulus spending which has increased the deficit of the
government. Australia is known to be a competitive global market with a stronghold on sectors
such as technology, services and high-end products of manufacturing. Mining, livestock
production and agriculture are the major modes of production in Australia and is done
extensively. These factors are the major contributors to the economy of Australia and hence to its
gross domestic product. In support of this, it has been observed that Australia has made
significant economic progress in the last decade with the help of strong macroeconomic policy,
strong development in commodity base and structural reforms of the government.The standard of
living of the citizens of Australia has increased due to which economic challenges have
tightened.
Computation of Australian GDP
There are three methods applied by the Australian Bureau of Statistics to calculate the
GDP of Australia. The first one is approaches of income, thesecond one is the production and
thelast one is expenditure. The approach for production contains all the values of produces and
the difference between services rendered and values of goods produced in the country. It also
adds the consumption and taxes on the goods produced such as mineral oil, tobacco and taxes
imposed upon them (rba.gov.au 2017). Subsidies on the respective products are subtracted to

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give the final GDP. The expenditure method calculates the cost incurred on final consumption of
the products which includes services as well as goods. This method also includes the final
expenditure of households, total consumption expenditure of the government, formation of
capital and next exports. Finally, the income method calculates the total revenue generated by the
economy which includes compensation given by employees, thegross surplus in operations,
mixed-income derived from taxes after deducting the subsidies on imports and production.
Rebalancing Commodity Prices with GDP
Since the time of commodity boom, theeconomy of Australia is rebalancing itself with
the help of currency depreciation and macroeconomic policies. Development of non-mining
sectors of theeconomy has supported the growth to 3% and has even reduced the employment
rate.Interest rates in the country have been low which has increased the aggregate demand and
has allowed the investors to take risks (rba.gov.au 2017). This has resulted in price hikes in the
mortgage and lending.

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R&D As a Part of GDP
To sustain the growth in production there should be synchronization in the innovation
and the manufacturing sectors. The Australian government has created frameworks for research
and development which is linked directly to the sectors of theeconomy which requires constant
upgradation to stay in the global competition. Innovation needs reforms in the labor market and
capital market to introduce new business models. With the collaboration of business strategies
and R&D, good amount of production growth can be achieved (rba.gov.au 2017). Australian
government’s “National Innovation and Science Agenda” has given anew dimension to this
approach. Funding for all these activities has been incorporated in the GDP calculated for one
financial year. This has helped the GDP and economy of Australia to become robust.
Increase in Household Income and Wealth
In the last decade, Australia has been suffering from unemployment due to the end of
thecommodity boom. There have been rising concerns about economic inequality in the country.
A gap has been created between the indigenous community of Australia and other citizens
regarding the socio-economic status and income groups. GDP of Australia provides funding for
innovation to develop the skillset of its underprivileged people (rba.gov.au 2017). Restructuring
of the payment systems can reduce the gender wage gap which has also developed in the last
decade.

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Macro-Economic Developments
During the tough times of global economic crisis, the economy of Australia stood its
ground due to its strong macroeconomic policy, buoyant financial system and high prices of
thecommodity.The economic adjustments made in the super cycle of commodity prices has been
a major part of the economic development in the last decade and has progressed very smoothly.
Huge decline in the resource-sector has been observed from 9% of GDP to 4.5% of GDP and
there has been a fall in resource sector employment as well as many large construction projects
were in their completion phase (rba.gov.au 2017).The decline in global prices of coal and iron
has been observed in 2011 due to which large investments were cut down by the investors to
reduce the production costs. Subsequently, Australia suffered the risk of low growth and
declining investments in private-sector due to doubtful investments and weak nature of global
trade. To counterbalance these negative scenarios policy settings of flexible nature was deployed
by the Australian government by setting up a helpful macroeconomic policy.
The economy also faced depreciation in the exchange rates resulting in export decline
and scarce revenue from tourism industry which makes a good chunk of the GDP of Australia.
Wage growth and CPI (Consumer Price inflation) remained passive in the last decade. CPI was
observed to be low from the expected target range of 2 to 3 percent as stated by the Reserve
Bank of Australia (rba.gov.au 2017). Nominal wage-growth has also remained low due to the
lackluster condition of the labor market which also included part-time jobs. This decline in
nominal GDP growth rate has taken a toll on the financial goals of the government which were
not reached as per expectations. In the last decade, Australia experienced a substantial current
account deficit which was expected to reduce in the coming years. But this risk posed by current
account deficit does not bother Australian economy as ahuge piece of foreign debt was

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dominated by Australian dollar and the remaining debt was hedged against the fluctuations of the
exchange rates.It was observed that Australian debt was increasing consistently however it was
in the middle position when compared to other countries. Australian government issued only
Australian dollar as the mode of exchange.
Macro Prudential Measures
On the account of risk taken by the households and banks, some measure was announced by
the Australian Prudential Regulation Authority in relation to the lending practices for the
households. Some measures concentrated on:
 Increase high-risk mortgage lending and to the extent to which they went in terms of
prices.
 The speed of growth in lending for household made by an investor.
 The buffer of interest rate and loan services assessment.
Investments in Non-Mining Sector
A recovery phase was observed in the non-mining sector, increasing the hopes of job
growth and economic consolidation.Some indicators showed that there waspurchase of new
machinery and investments were made to make the employees work for more hours. Private
business was observed to expand by 1.1% every quarter after experiencing about 12 quarters of
negative growth in the private sector investment (rba.gov.au 2017).

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Tax, Fiscal Consolidation and Reforms on Expenditure
When compared to other countries of South-East Asia, theburden of tax, expenditure on
public services, and public debt were low in the last decade. After the financial crisis is 2008,
Australian government authorities extended proper support to keep its economy out of recession.
The federal deficit was observed to be 2.4% of GDP which is way below 4.2% as it was recorded
before the crisis (Lee 2013).The fiscal policy makes of Australia made a balanced budget. State
governments do not have much part in budget preparation as their stance in this matter is very
small. It was mostly decided that target of 1% surplus in GDP growth rate will be targeted for
each year to keep out the burden of debt-GDP ratio.The analysis suggested that surplus of 1%
will close the gap of debt-GDP ratio to 25% in 2025-26 and will zero the gap till 2040 (McLean
2012). Personal income tax onsets are not routinelyincorporated in Australia.This gives leverage
for flexiblealteration of the tax schedule to be a portion of structural reforms.

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Resilience in Banking
The financial crisis of 2008 does not leave the banks of Australia in much troubled waters
but attracted tighter regulations and practices.Banks changed their course of business from
lending in short-term towards deposits (rba.gov.au 2017). According to the “Murray Inquiry”
capital ratios had reached their lending limits as prescribed by the banking regulators. The
Murray Inquiry highlighted that consolidation of bank pliability should also include new
practices to curtail the expenses to the public on the occurrence of bank failure.The
inquirysuggested the formation of a loss captivating and recapitalizationstructurein accordance
with international scenarios to permitactualpurpose with reduced risk to taxpayer funds.The
apprehensionofpower of banking directive has provoked efforts to recognize and removerewards
for banks in regulatory procedures.
Stance of Australian Economy
The financial position of Australia ended up being strong as it is right now. According to
the recent survey conducted cross-country, debt can reduce the output growth by 70%-90% of
GDP. This means that since Australia has gross debt of 44%, it can take fiscal blows and can still
stimulate growth (Kubiszewski, Jackson and Aylmer 2013). Australia could route a significantly
larger deficit for some period of time without flirting with the limits recommended above.When
the risks due to weak fiscal positionemerge, the government should dynamically use fiscal policy
to provision the economy, as they did in 2008-09. Since trade in Australia is moderately
regulated the value of exports and imports compute to about 41% of the Australian GDP. This
leaves the authorities with a cushion to tackle any fluctuations in the GDP growth rate. Growth
was largely based on the amalgamation of robust public investment and net exports, restrained
public consumption and household depletion and soft business speculation. It could have

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happened that GDP could increase to the Reserve Bank of Australia’s forecast of yearly growth
of around 2.75% by the end of each year, but it would need large spending practices from
consumers which were not probable then.

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Current Scenario
Australia is the only country in the group of OECD countries who have experienced the
longest span of economic growth in spite of the threats made by Global Financial Crisis in 2008.
Every other country in the group of 34 member countries in the Organization for Economic Co-
operation and Development (OECD) have gone through at least one phase of two successive
quarters of adverse GDP growth since 1991 (Dijk, Timbal and Viney 2013). Comparative growth
statistics of Australia are based on the progress accounts collected by the OECD. These
statsreflect that there are only two other countries who came close to corresponding Australia’s
recent economic high the first one being Japan and the second is Netherlands. Economic
supremacy of Australia over the past decade has been the cause of jealousy for many countries
across the world. Australia cruised through the Global Economic Crisis of 2008 and outgrew
every other peer country. Australia's real GDP developed by yearly average of 2.7% between the
years 2012 and 2016 which was well ahead of the economic giants such as U.S and U.K
(rba.gov.au 2017). As of today, the economy of Australia is the largest mixed market, with a
GDP of AUD $1.69 trillion (Cecchetti and Kharroubi 2012).