Reasons behind growth of service sector industries in australia

HC1072 Economics and International Trade: Growth of Australia

You are required to choose a topic out of the following list:

GDP and Economic growth of Australia during last 5 years and analyse Australian Government policy towards this. Which industries have been growing and reasons of this growth?

Answer:

Introduction

However, the economic patterns of the country have not always been smooth and the country experiences a fair share of economic fluctuations, especially in the last few years, the same having both positive as well as negative impacts on the country and on its population as a whole. Keeping this into account, the concerned report tries to analyse and discuss the dynamics and growth of the GDP of the country as well as dynamics in the overall economic growth patterns of the concerned country over the last few years, thereby discussing the economic policies present in this aspect and their implications. The report also tries to discuss the dynamics and shifts in the industrial sectors of the country during this concerned period.

Australia: Economic Overview

Before analysing the overall economic growth trends of the country, it is of considerable significance to study the overall economic profile of Australia which the country has maintained over the years. Being one of the most developed and influencing economies in the global scenario, as discussed above, the country ranks fourth globally in terms of Nominal GDP and also ranks second in terms of wealth per adult person in the population. The country has over the years, experienced massive booms in its mining, residential, technological and manufacturing sectors, which in turn has contributed to its economic prosperity and a higher than average living standard for most of the residents of Australia (Groenewegen and McFarlane 2014). Behind the economic and overall progress and stability of the country lies the impressive policy frameworks and efficient government structure of the country. Keeping this into consideration, the economy of Australia, in the last five years, is studied in the following sections.

Australian Economy in last five years

GDP and its growth trends in the last five years

(Source: Tradingeconomics.com 2018)

As is evident from the above figure, the GDP of Australia, which increased minimally from 2012 to 2013, has however decreased post 2013 till 2016, from 1567 billion USD to 1204 billion USD. The GDP of the country however, rose to some extent in 2017 (1690 billion AUD), which in turn shows signs of recovery of the (McLachlan 2013). These trends in the GDP of the country can however be more clearly observed by studying the dynamics of the GDP growth rate of the same in the concerned period.

To gauge the economic welfare of the population of the country it is better to consider the dynamics of the per-capita GDP of the country as GDP growth as a whole does not consider the aspects of distribution of the fruits of economic growth to the population. In case of per capita GDP also, just considering the money value of the same may be a biased way of judging the economic welfare of the residents due to the presence of the aspects of inflation and disparities in money values (Agénor and Montiel 2015). Thus, considering the purchasing power parity adjusted per-capita GDP can help in measuring the actual growth in the real purchasing powers and economic well-being of the resident of the country to a considerable extent.

Economic growth of Australia in the last five years

Inflation in Australia in the last five years

One of the most significant macroeconomic indicators of wellbeing of an economy, after that of GDP is the rate of inflation prevalent in a country, which in turn shows the movement of the average price levels of goods and services in the country over time, thereby highlighting the economic welfare of the residents in terms of their purchasing power and demand conditions. While a very high inflation decreases the economic welfare of the population tremendously, a very low inflation leads to decrease in production thereby leading to recessionary conditions in an economy (Heijdra 2017).

Unemployment in Australia in the last five years

Figure 5: Australian unemployment rate in the last five years

Consumption expenditure in Australia in the last five years

Figure 6: Consumption expenditure of Australia in the last five years

(Source: Tradingeconomics.com 2018)

Growth of trade in Australia in the last five years

(Source: Tradingeconomics.com 2018)

The export volume of the country, staying considerably moderate till 2016, can be seen to be increasing impressively in the last year, which can to some extent, explain the sudden increase in the otherwise falling trends of GDP in the country.

Thus, from the above discussion, it is evident that the economy of the concerned country has been subjected to considerable dynamics in every aspect of its growth parameters and have mostly performed positively in all the aspects, barring the GDP dynamics as a whole, which also can be seen to be showing positive trends in the last year. Together all these indicators highlight the overall growing health of the economy of Australia.

Policy Structure

The economic growth of Australia over the years, can be attributed to the robust and effective economic policy structure present in the country over the years, the primary components of the same being as follows:

Australian economic policy framework is a pro-employment generation one and has over the years concentrated in creating new employment scopes foe the increasing population of the country to keep the economic growth trends persistent in the country. The government of Australia, in the last year only, created 300,000 jobs for the residents of the country. This is one of the primary reasons behind the overall economic well-being of the residents of the country (Gregory and Smith 2016).
Australian economic policies have over the years encouraged industrial and commercial growth and has been open to foreign investments as well as immigration of employees. The government attracts foreign investors through lucrative tax cuts and offers, which in turn has also led to the inflow of huge amount of FDIs in the country, thereby contributing to its economic growth.
One of the major components of the policy stricture of the economy is the aspect of stability. The fiscal and monetary stability stimuli have helped the economy to maintain its persistent growth even in periods of crisis like Global Financial Crisis of 2008 and even if the economy growth declined during the same, it was seen to be recovering abruptly owing to the stability in the economic policy framework of the country as a whole.
The monetary policies of Australia also follow an inflation targeting system, where a target level of inflation is set and then the policies and cash rates are designed and implemented in such a way that the target is achieved within a stipulated time (Willard 2012). This can be seen to be effective for the economy as is suggested by the stable and moderate level of inflation prevailing in the economy over the last five years.

Growth of industries in the last five years

As is evident from the above figure, in the recent years, the service sectors, especially those like professional, educational, financial, business and household services, have been growing massively while the manufacturing, mining and construction sectors have been losing their size and dominance, in terms of job creation, revenue generation and overall activities (Morris, Kaplinsky and Kaplan 2012).

Reasons behind growth of service sector industries in Australia

The growth of the service sector industries in the recent years, in Australia, has been primarily facilitated by the huge growth in the capital formation and investment in the country, from both within the country itself as well as from foreign investors from all parts of the world. The service sector industries are highly capital-intensive industries and also require high skilled workers for its expansion and Australia, in the current period, has both of these components, which in turn have led to the industrial shift in the country in the contemporary period (Hakansson 2015). However, this shift has led to the decline of the basic manufacturing industries as well as the agricultural sector of the country, as can be seen by the extent of jobs lost in these sectors.

Conclusion

References

Budget.gov.au (2018). Budget 2016-17 - Sticking to our national economic plan for jobs and growth in a stronger, new and more diversified economy. [online] Budget.gov.au. Available at: https://budget.gov.au/2016-17/content/glossies/jobs-growth/html/ [Accessed 24 May 2018].

Gould, J.D., 2013. Economic growth in history: survey and analysis. Routledge.

Kumar, S., Webber, D.J. and Perry, G., 2012. Real wages, inflation and labour productivity in Australia. Applied Economics, 44(23), pp.2945-2954.

McCombie, J. and Thirlwall, A.P., 2016. Economic growth and the balance-of-payments constraint. Springer.

Tradingeconomics.com (2018). Australia Consumer Spending | 1959-2018 | Data | Chart | Calendar. [online] Tradingeconomics.com. Available at: https://tradingeconomics.com/australia/consumer-spending [Accessed 24 May 2018].

Tradingeconomics.com (2018). Australia Unemployment Rate | 1978-2018 | Data | Chart | Calendar. [online] Tradingeconomics.com. Available at: https://tradingeconomics.com/australia/unemployment-rate [Accessed 24 May 2018].

Willard, L.B., 2012. Does inflation targeting matter? A reassessment. Applied Economics, 44(17), pp.2231-2244.