[Type text]

International School
of Business & Media

[Type text]

[Type text]

ME-II
Project on Australian
Economy

BY:
RISHU NANDESHWAR (15004)
MOHAMMAD TALHA (15049)
1

Table of Content
1.
Introduction ....................................................................................................
.2-4
2. Australian Government
Policy ..........................................................................5
3.
Objective .........................................................................................................
..6-7
4.
Methodology ....................................................................................................
.8
5. Economic Analysis of
Australia.........................................................................9-19
6. The Current
scenario ........................................................................................20-24
7. SWOT
Analysis ..................................................................................................25-26
8. Analysis and
Findings ........................................................................................27-32
9.
References ......................................................................................................
..33

INTRODUCTION
Australia officially the Commonwealth of Australia is a country comprising the mainland of
the Australian continent, the island of Tasmania, and numerous smaller islands. It is the
world's sixth-largest country by total area. Neighbouring countries include Indonesia, East
Timor and Papua New Guinea to the north; the Solomon Islands andVanuatu to the north-east;
and New Zealand to the south-east.
For at least 40,000 yearsbefore the first British settlement in the late 18th century. Australia was
inhabited by indigenous Australians,]who spoke languages grouped into roughly 250 language
groups. After the European discovery of the continent by Dutch explorers in 1606, Australia's
eastern half was claimed by Great Britain in 1770 and initially settled throughpenal transportation to
the colony of New South Wales from 26 January 1788. The population grew steadily in subsequent
decades; the continent was explored and an additional five self-governing crown colonies were
established.
On 1 January 1901, the six colonies federated, forming the Commonwealth of Australia. Since
Federation, Australia has maintained a stable liberal democratic political system that functions as
a federal parliamentary democracy and constitutional monarchycomprising six states and several
territories. The population of 23.6 million is highly urbanized and heavily concentrated in theeastern
states and on the coast.
Australia is a developed country and one of the wealthiest in the world, with the world's 12th-largest
economy. In 2012 Australia had the world's fifth-highest per capita income. Australia's military
expenditure is the world's 13th-largest. With the second-highest human development index globally,
Australia ranks highly in many international comparisons of national performance, such as quality of
life, health, education, economic freedom, and the protection of civil liberties and political rights.
Australia

is

member

of

the United

Nations, G20, Commonwealth

of

Nations, ANZUS, Organisation for Economic Co-operation and Development (OECD), World Trade
Organization, Asia-Pacific Economic Cooperation, and the Pacific Islands Forum.

Capital

Canberra
3518.48S 1497.47E

Largest city

Sydney

.Commonwealth of Australia
Official languages

None

National language

English

Demonym
Government

Australian
Aussie
Federal parliamentaryconstitutional
monarchy

Monarch

Elizabeth II

Governor-General

Sir Peter Cosgrove

Prime Minister

Tony Abbott

AUSTRALIA
GOVERNMENT
POLICY

Chief Justice

Robert French

Australia is a constitutional

monarchy with a federal division

Legislature

Parliament

Upper house

Senate

Lower house

House of Representatives

of powers. It uses a parliamentary

system of government with Queen
Elizabeth II at its apex as
the Queen of Australia, a role that
is distinct from her position as

Independence from the United Kingdom

Constitution

1 January 1901

Statute of

9 October 1942 (with effect

- Westminster

from 3 September 1939)

other Commonwealth realms. The

Queen resides in the United
Kingdom, and she is represented
by her viceroys in Australia
(the Governor-General at the

Adoption Act
Australia Act

monarch of the

3 March 1986

federal level and by

the Governors at the state level),

who by convention act on the

Area
Total
-

7,692,024 km2 (6th)

2,969,907 sq mi

advice of her ministers. Supreme

executive authority is vested by
the Constitution of Australia in the
sovereign, but the power to
exercise it is conferred by the
Constitution specifically on the
Governor-General. The most

Population
2014 estimate

23,682,900] (51st)

2011 census

21,507,717

Density

2.8/km2 (233rd)

notable exercise to date of the Governor-General's reserve powers outside the

Prime Minister's request was the dismissal of the Whitlam Government in
the constitutional crisis of 1975.
The federal government is separated into three branches:

The legislature: the bicameral Parliament, defined in section 1 of the

constitution as comprising the Queen (represented by the Governor-General),
the Senate, and the House of Representatives;

The executive: the Federal Executive Council, in practice the GovernorGeneral as advised by the Prime Minister and Ministers of State; [95]

The judiciary: the High Court of Australia and other federal courts, whose
judges are appointed by the Governor-General on advice of the Council.

There are two major political groups that usually form government, federally and in
the states: the Australian Labor Party and the Coalition which is a formal grouping
of the Liberal Party and its minor partner, the National Party. Independent
members and several minor parties have achieved representation in Australian
parliaments, mostly in upper houses.
Within Australian political culture, the Coalition is considered centre-right and the
Labor Party is considered centre-left. Queensland in particular, along with Western
Australia

and

the

Northern

Territory,

are

regarded

as

comparatively conservative. Victoria, South Australia, Tasmania, and the Australian

Capital Territory are regarded as comparatively socially liberal. New South Wales
has often been regarded as a politically moderate bellwether state.
Following a party room leadership challenge, Julia Gillard became the first female
Prime Minister in June 2010. The most recent federal election was held on 7
September

2013

and

resulted

in

a majority

government for

the Coalition with Liberal Party of Australia leader Tony Abbott as Prime Ministerelect. He was sworn into office by the Governor-General of Australia on 18
September.
4

Objective

The objective of the study on Australia is to find the gdp, unemployment

rate, growth rate, inflation rate, export, import, balance of trade and all
other data which can help in studying about the economy of the country
Somalia.
This is to analyze the economy of Somalia and to throw some light on
current scenario of the countrys economy. To know what are the strengths,
weaknesses of the country, economy wise. To get a brief idea about what
are the new opportunities that the country can prospect and what are the
threats to the country, both internal as well as external. What are the other
macroeconomic factors that are affecting Australias economy and to find
the GDP, Unemployment rate, Growth Rate, Inflation Rate, Export, Import,
Balance Of Trade, and all other data which can help in Studying about the
economy of the Country Australia.
The 5 key economic aims of Australia are:

- Full employment
- Sustainable economic growth
- external stability
- fair income distribution
- efficiency of resource allocation

Full employment-

Full employment refers to the ability of those in the

workforce who want to be employed, to find work. Zero unemployment cannot be
achieved as there will always be frictional (voluntary), and structural (short
term) unemployment in the economy. In Australia, full employment is considered to
be the non-accelerating inflation rate of unemployment (NAIRU) which is around
4% p.a. This is considered the lowest rate that can be achieved without causing
inflation to rise.
Like inflation, unemployment is a macroeconomic problem caused by fluctuations
in gross domestic product (GDP). A high unemployment level also causes serious
problems for economies. It reflects unused resources and results in
5

underproduction of goods and services. It shows the economy operating inside the
production possibilities frontier. Most governments attempt to control
unemployment in order to reduce the waste of resources and satisfy more needs
and wants.
The goal of full employment is closely related to the goal of efficiency in resource
allocation. In this case, we are examining the efficiency with which one particular
resource is used, namely labour.

Sustainable

Economic growth-

It occurs when more goods and

services are sold in the country this year than were sold last year. This means that
production has increased. A better definition of economic growth ensures that it
mentions sustained increases in the productive capacity of the economy, or the
ability of the economy to satisfy the needs and wants of the population.

Real GDP ( gross domestic product adjusted for inflation) is the most
common way to measure the economic growth of an economy from year to year.
The Australian Bureau of Statistics (ABS) defines GDP as the 'unduplicated value of
production that occurs in Australia in a particular period'. This definition recognises
that the calculation only includes the value of finished goods and services in the
economy. Intermediate goods, such as the sand used in concrete manufacture or
the gold used in computer chips, are deducted from the final measure of GDP, and
are not counted twice thus the term 'unduplicated'.

Achieving sustainable levels of around 4% p.a economic growth is one of the

Australian government's main goals. The government aims to achieve consistent
growth without the negative side effects of unstable prices or poor external
stability. The policy approach adopted by the government will reflect these goals,
even though at times it may appear that they are competing.

External stability-External stability is when Australia's external economic

relations do not have negative effects on the domestic economy. It refers to the
ability of Australia to meet its financial obligations to the rest of the world. It
includes:

Stable currency: Rapid movements or excessive fluctuations in the AUD

can indicate external instability. It is difficult for the economy to adjust to a
rapid or large depreciation of the AUD. Suppliers may be unable to change
production patterns quickly and consumers are unlikely to suddenly
change their spending habits. It will therefore impact on the efficient
allocation of resources and destabilize the economy. Investors also are
deterred as capital outflow occurs with investors moving to more stable
economies.

Sustainable CAD: Australia consistently runs a high CAD that has

fluctuated between about 2% and 6% of GDP. Capital inflow in the form of
foreign debt or equity is needed to finance the CAD. This adds to the interest
and dividends Australia must pay which further increases the CAD. This in
turn means that even more capital inflows are needed, and so on,
which raises concerns that it can lead to a debt trap scenario. It creates a
cycle in which a CAD means that the Capital and Financial Account surplus
must grow, which leads to an even bigger CAD. Although it does not cause
any major economic problems, some international investors may regard a
high CAD as too risky to invest in the Australian economy. There is no agreed
set level at which the CAD becomes unsustainable.

Sustainable foreign debt: Australia's foreign debt is measured in dollar

terms and is often quoted as a proportion of GDP. Over the years, Australia's
foreign debt has been steadily rising from just over $3 billion (4% of GDP) in
1976 to almost $80 billion (31.6% of GDP) in 1986. In March 2010, it was
$654 billion (51.9% of GDP). It is important to note that foreign debt has
been rising more quickly that GDP. This means that the net foreign debt as a
proportion of GDP has risen. For much the same reasons as a high CAD, high
levels of foreign debt may also indicate foreign instability. Australia must pay
interest on its debt, which is called servicing the debt. More money may be
borrowed to service the existing debt, so both the debt and and future
interest obligations grow. To assess the sustainability of the foreign debt,
many economists look at the debt servicing ratio - this measures the
proportion of export revenue needed to make interest repayments. In 2008,
this was about 12%, which was well above the 4% in 1976, but well below
the peak of 24% in 1991. This suggests to some economists, that currently,
Australia does not have a debt sustainability problem.

Income distribution-

A more equal distribution of income in Australia is a

goal of the government to ensure that all members can obtain a reasonable
standard of living. A progressive income tax system and social security measures
are two key methods used by the government to achieve this.
7

Efficient resource allocation-In order to minimize waste and maximize the

economic welfare of society, the government attems to allocate the resources of
land, labour,capital and enterprise more efficiently. The three types of economic
efficiency that can be achieved are:

Technical or productive efficiency - related to inputs and outputs in

production

Allocative efficiency - resources allocated to the most valued uses and least
opportunity cost

Dynamic efficiency - the ability of the economy to adapt over time.

Research Methodology
Research is systematic, controlled, empirical and critical investigation of
hypothetical propositions about the presumed relations among natural phenomena.
(Kerlinger, 1973). Research is the pursuit of truth with the help of study,
observation, comparison and experiment; the search for knowledge through
objective and systematic method of finding solutions to a problem.
The ways involved in research process:

Google Scholar , it is still an experimental service. From a bibliometric

perspective,It is crude, because it is based on brute-force free-text analysis,
without resource to metadata, and without anysystematic approach to
testing venues for quality before including them.

Proquest supports researchers of every typestudents at every level,

faculty, information professionals, and patents and R&D researcherswith
vast, varied information packaged digitally for enhanced discovery, sharing,
and management.

Wikipedia contain all the brief information of Australia.

Milestone 2:
Economic Analysis of Australia.
The economy of Australia is one of the largest capitalist economies in the world, with
a GDP of US$1 trillion as of 2013.Australia's total wealth is 6.4 trillion dollars In 2012, it
was the 12th largest national economy by nominal GDP and the 17th-largest measured
by PPP-adjusted(Purchasing power parity (PPP) is a component of some economic

theories and
is
a
technique
used
to
determine
the
relative value of
different currencies). GDP, about 1.7% of the worldeconomy. Australia is the 19thlargest importer and 19th-largest exporter. The Reserve Bank of Australia publishes
forecasts of the economy quarterly.

The Australian economy is dominated by its service sector, comprising 68% of GDP. The
mining sector represents 10% of GDP; the "mining-related economy" represents 9% of
GDP the total mining sector is 19% of GDP. Economic growth is largely dependent on
the mining sector and agricultural sector (12% of GDP ]) with the products to be
exported mainly to the East Asian market.

The Australian Securities Exchange in Sydney is the largest stock exchange in Australia
and

in

the

South

Pacific and

ranks

9th

in

the

world

in

terms

of market

capitalisation. Australia is home to some of the largest companies in the world,

including but not limited to, BHP Billiton, National Australia Bank, Commonwealth
Bank, Rio Tinto Group, ANZ, Westpac, Telstra, Macquarie Bank,Wool worths and AMP
which also are the 10 largest companies in Australia. The Australian dollar is the
currency of the Commonwealth of Australia and its territories, including Christmas
Island, Cocos (Keeling) Islands, and Norfolk Island. It is also the official currency of the
independent Pacific Island nations of Kiribati, Nauru and Tuvalu.

Australia is a member of the APEC, G20, OECD and WTO.The country has also entered
into free trade agreements with ASEAN,Chile,NewZealand,Japan and the UnitedStates.
The ANZCERTA agreement with New Zealand has greatly increased integration with
the New Zealand economy and in 2011 there was a plan to form an Australasian Single
Economic Market by 2015.

Sectors wise growth

Industry
Mining

Coal is mined primarily in Queensland, New South Wales and Victoria. 54% of the
coal mined in Australia is exported, mostly to East Asia. In 2000/01, 258.5 million
tonnes of coal was mined, and 193.6 million tonnes exported. Coal provides about
85% of Australia's electricity production. In fiscal year 2008/09, 487 million tonnes
of coal was mined, and 261 million tonnes exported.Australia is the world's leading
coal exporter.
Australia's Argyle mine is the second largest diamond mine in the world estimated
to produce 12.6 million carats in 2014, worth over $500 million.Argyle is known for
producing some of the worlds most valuable fancy pink and red diamonds.

Manufacturing

The manufacturing industry in Australia has declined from 30% of GDP in the 1960s
to 12% of GDP in 2007.

Agriculture

Agriculture contributes 3% of Australia's GDP at the farm gate and when valueadded processing beyond the farm is included this figure rises to 12%. 60% of farm
10

products are exported. Irrigation is an important and widespread practice for a

country where many parts receive low rainfall.
Services
IT related jobs (such as computer system design and engineering) are defined as
Professional, Scientific and Technical Services by the Department of Education,
Employment and Workplace Relations of Australia. IT job creation occurs mostly in
the state capital cities of Australia.
Finance
Australia's four 'Big Banks' are among the 'World's 50 Safest Banks' as of April
2012. The four largest banks in Australia are also known as the "Big Four".
Between 1991 and 2013, 36,720 mergers and acquisitions with a total known value
of US$2,040 billion with the involvement of Australian firms have been
announced. In the year 2013, 1,515 transactions valued at US$78 billion had been
announced which was a decrease in terms of numbers (18%) and value (11%)
compared to 2012. The largest takeover or merger transaction involving Australian
companies was the 2007 takeover of the Coles Group by Wesfarmers, totalling
A$22 billion.

Tourism

In the financial year 201011, the tourism industry represented 2.5% of Australia's
GDP, at a value of about $35 billion to the national economy equivalent to $94.8
million a day to the Australian economy.[ Domestic tourism is a significant part of
the tourism industry, and was responsible for 73% of the total direct tourism
GDP. The 201011 financial year saw a record number of overseas arrivals in the
financial year, with 5.9 million short-term visitor arrivals to Australia (588 extra
visitors a day). Tourism employed 513,700 people in Australia in 201011, of which
43.7% were part-time. Tourism also contributed 8.0% of Australia's total export
earnings in 201011.

11

Media

In 201112, Australia was ranked 30th out of 179 countries in accordance to press
freedom. Media is a strong industry in Australia, with Fairfax Media and News
Corporation representing two of the countries largest media companies.

Education
School attendance is compulsory in Australia, from the age of 5 up until
approximately 16 (although it varies between each state and territory).Australia
also has an adult literacy rate that was estimated to be 99% in 2003.
In 2004, the average educational acquirement of the adult population in OECD
countries was 11.9 years. This is based on the duration of formal educational
programmes. Australia ranked relatively highly in the study, with the population
recording slightly over 12 years in education, ranking similarly to many European
countries such as Sweden, Ireland and Poland. Australia was, however,
outperformed by Canada, Germany and the United Stateswhich all measured
close to 14 years in education.
In the Programme for International Student Assessment, Australia regularly scores
among the top five of thirty major developed countries (member countries of
the Organisation for Economic Co-operation and Development). Catholic
education accounts for the largest non-government sector.
University attendance in Australia is expensive, particularly in comparison to other
developed nations such as the New Zealand, Canada, France and the United
Kingdom.

Energy

The Australian economy is dependent on imported crude oil and petroleum

products, the economy's petroleum import dependency is around 80% crude oil +
petroleum products.HUMAN
12

DEVELOPMENT INDEX
Australia - Human Development Index
Date

HDI

2013

0.933

2012

0.931

2011

0.928

2010

0.926

2008

0.922

2005

0.912

2000

0.898

1990

0.866

1980

0.841

Chart Title
1
0.8
0.6
0.4
0.2
0
Date 2013 2012 2011 2010 2009 2008 2007 2006 2005

Interpretation: Here in the given graph shows that HDI value is gradually
increases year by year. Australias HDI value for 2012 is 0.931in the very high
human development categorypositioning the country at 2 out of 187 countries
and territories. Between 1980 and 2012, Australias HDI value increased from
0.841 to 0.931, an increase of 10 percent or average annual increase of about 0.3
percent.

13

Australia was ranked 2 out of 187 countries. However, it is misleading to compare

values and rankings with those of previously published reports, because the data
and methods have changed

Inflation rate

Interpretation: In Australia, the most important categories in the consumer price

index are housing (22.3 percent of the total weight), food and nonalcoholic
beverages (16.8 percent), recreation and culture (12.6 percent), transport (11.6
percent), furnishings, household equipment and services (9.1 percent), alcohol and
tobacco (7.1 percent), health (5.3 percent) and insurance and financial services
(5.1 percent). Clothing and footwear, education and communication account for
remaining 10.2 percent of total weight. This page provides - Australia Inflation Rate
- actual values, historical data, forecast, chart, statistics, economic calendar and
news. Content for - Australia Inflation Rate - was last refreshed on Wednesday,
December 10, 2014.
Australian annual inflation rate slowed to 2.3 percent in the third quarter of 2014 from
3.0 percent in the previous period, driven by a fall in price of electricity, after the
government removed a tax on carbon emission starting early July.
Year-on-year, the most significant price falls this quarter were for electricity (-5.1
percent) and automotive fuel (-2.5 percent). Prices were also lower for communication
(-1.4 percent) and clothing and footwear (-1.0 percent).
In contrast, the most significant price rises this quarter were for fruit (+14.7 percent),
new dwelling purchase by owner-occupiers (+1.1 percent), property rates and charges
(+6.3 percent) and other services in respect of motor vehicles (+5.8 percent). Prices

14

were also higher for alcohol and tobacco (+1.1 percent), mainly due to the effects of
the federal excise tax increase from September 2014, and for recreation and culture
(+0.6 percent).
Consumer prices rose 0.5 percent in the September quarter, compared with a rise of
0.5 percent in the June quarter.

Unemployment rate

The unemployment rate is a measure of the prevalence of unemployment and it is

calculated as a percentage by dividing the number of unemployed individuals by all
individuals currently in the labor force. During periods of recession, an economy
usually experiences a relatively high unemployment rate. [2] According
to International Labour Organization report, more than 197 million people globally
or 6% of the world's workforce were without a job in 2012.

Interpretation:Unemployment Rate in Australia increased to 6.20 percent

October of 2014 from 6.20 percent in September of 2014. Unemployment Rate
Australia averaged 6.91 Percent from 1978 until 2014, reaching an all time high
10.90 Percent in December of 1992 and a record low of 4 Percent in February
2008. Unemployment Rate in Australia is reported by the Australian Bureau
Statistic.

in
in
of
of
of

15

Seasonally adjusted jobless rate in Australia remained unchanged at 6.2 percent in

October of 2014 from a revised September figure. The number of unemployed
persons increased by 7,100 to 772,100.

Australia GDP per capita

Interpretataion:
The Gross Domestic Product per capita in Australia was last recorded at
37492.85 US dollars in 2013. The GDP per Capita in Australia is equivalent
to 297 percent of the world's average. GDP per capita in Australia averaged
24280.15 USD from 1960 until 2013, reaching an all time high of 37492.85
USD in 2013 and a record low of 13356.10 USD in 1962. GDP per capita in
Australia is reported by the World Bank.

16

Australia Balance of Trade

Interpretation : Australia recorded a trade deficit of 1323 AUD Million in

October of 2014. Balance of Trade in Australia averaged -500.66 AUD Million

from 1971 until 2014, reaching an all time high of 2226 AUD Million in
February of 2009 and a record low of -3892 AUD Million in February of 2008.
Balance of Trade in Australia is reported by the Australian Bureau of
Statistic.

The past analysis

Economic liberalisation and deregulation of the Australian economy only began

under the Hawke Labor Government in the early 1980s. The government of Robert
Hawkecommenced the process of economic reform by concluding a wages accord
with the trade union movement. In exchange for wage restraint and an increase in
the "social wage" the trade union movement agreed to support economic reform
and oppose industrial conflict (i.e. strikes). The success of the "Accord" allowed a
Labor Government to implement economic reforms that in other nations had been
implemented by conservative political parties; tariffs were progressively cut, the
Australian dollar was floated (1983), and the financial system deregulated. Hawke
17

was

also

able

The Commonwealth

to privatise several
Bank was

sold

in

large
three

government
parcels

between

enterprises.
1991

and

1996. Qantas was sold in two parcels, one in 1993 and the other in 1995, and
the Commonwealth Serum Laboratories was floated in 1994. Telstra was sold off in
three parcels in 1997, 1999 and 2006. One result of these reforms was a marked
increase labor productivity, and a reduction in government spending as a
proportion of GDP. The Australian Stock Exchange Limited (ASX) was formed in
1987 through the amalgamation of six independent stock exchanges that formerly
operated in the state capitals. Each of those exchanges had a history of share
trading dating back to the 19th century.

This process of economic reform and restructuring continued under the Co-alition
Government led by John Howard which took power in 1996. The Howard
Government established a Goods and Services Tax (2000), established a national
Productivity

Commission,

and

further

deregulated

labor

markets

under WorkChoices in 2006. The result of the process of economic reform is that
Australia is now one of the most open economies in the world. It was enjoyed over
two decades of economic growth, coupled with low inflation and relatively low
unemployment.

The 1980s economic reforms, intended to diversify the national economy and make
it more resilient, were introduced after the mid-1980s decline in the terms of trade.
This is a chart of trend of gross domestic product of Australia at market prices
estimated by the International Monetary Fund with figures in millions of Australian
Dollars.

For purchasing power parity comparisons, the US Dollar is exchanged at 0.98 Australian
Dollars.In recent times Australia has received financial growth in the mining industry.
This has been a major contributing factor of a high Australian dollar.

18

Australias economy has been one of the most resilient in the OECD during the
recent economic crisis, boosted by demand for its commodities from China. The
country recorded only a solitary quarter of economic contraction, with growth
increasing 1.2% in 2009 . Australia recorded consistent fiscal surpluses in the years
leading up to the economic crisis due to favourable economic circumstances and a
sound fiscal framework. In 2009, the fiscal balance shifted into negative territory,
with Australia recording a deficit of 4.0% of GDP. Gross debt has remained
relatively stable at around 20% of GDP, significantly below the OECD average . The
Australian economy rebounded by 3.1% from June 2009-June 2010, and the OECD
projects it to experience solid growth again in 2011 boosted by domestic demand
and a booming export sector.

19

Balance of payment
In trade terms, the Australian economy has had persistently large current account
deficits (CADs) for more than 50 years. One single factor that undermines balance
of payments is Australia's narrow export base.
Dependent upon commodities, the Australian government has endeavoured to
redevelop the Australian manufacturing sector. This initiative, also known as
microeconomic reform, helped Australian manufacturing to grow from 10.1% in
19831984 to 17.8% in 20032004.
There are other factors that have contributed to the extremely high current
account deficit in Australia such as lack of international competitiveness. [109]
However, as Australia's CAD is almost entirely generated by the private sector, as
outlined in Professor John Pitchford's 'Consenting Adults Thesis' in the early 1990s,
there is an argument that the CAD is not a significant issue. Historically, Australia
has relied on overseas capital to fill the gap between domestic savings and
investment, and many of these investment opportunities could not have been
20

pursued if Australia did not have access to foreign savings. This suggests that
Australia's apparently low savings level and CAD are not necessarily a significant
problem. As long as the investment that is being funded by overseas capital inflow
generates sufficient returns to pay for the servicing costs in the future, the increase
in foreign liabilities can be viewed as sustainable in the longer term.

Milestone 3:
The current scenario of Australia economy
Economic overview
The Australian economy has experienced continuous growth and features low unemployment,
contained inflation, very low public debt, and a strong and stable financial system. By 2013,
Australia had experienced more than 20 years of continued economic growth, averaging 3.5%
a year. Demand for resources and energy from Asia and especially China has grown rapidly,
creating a channel for resources investments and growth in commodity exports. The high
Australian dollar has hurt the manufacturing sector, while the services sector is the largest part
of the Australian economy, accounting for about 70% of GDP and 75% of jobs. Australia was
comparatively unaffected by the global financial crisis as the banking system has remained
strong and inflation is under control. Australia has benefited from a dramatic surge in its terms
of trade in recent years, stemming from rising global commodity prices. Australia is a significant
exporter of natural resources, energy, and food. Australia's abundant and diverse natural
resources attract high levels of foreign investment and include extensive reserves of coal, iron,
copper, gold, natural gas, uranium, and renewable energy sources. A series of major
investments, such as the US$40 billion Gorgon Liquid Natural Gas project, will significantly
expand the resources sector. Australia is an open market with minimal restrictions on imports of
goods and services. The process of opening up has increased productivity, stimulated growth,
and made the economy more flexible and dynamic. Australia plays an active role in the World
Trade Organization, APEC, the G20, and other trade forums. Australia has bilateral free trade
agreements (FTAs) with Chile, Malaysia, New Zealand, Singapore, Thailand, and the US, has
a regional FTA with ASEAN and New Zealand, is negotiating agreements with China, India,
Indonesia, Japan, and the Republic of Korea, as well as with its Pacific neighbors and the Gulf
Cooperation Council countries, and is also working on the Trans-Pacific Partnership Agreement
with Brunei Darussalam, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the
US, and Vietnam.

GDP (purchasing power

parity)

$998.3 billion (2013 est.)

$974.2 billion (2012 est.)
$939.7 billion (2011 est.)
note: data are in 2013 US dollars

GDP (official exchange

$1.488 trillion (2013 est.)

21

rate)
GDP - real growth rate

2.5% (2013 est.)

3.7% (2012 est.)
2.4% (2011 est.)

GDP - per capita (PPP)

$43,000 (2013 est.)

$42,500 (2012 est.)
$41,700 (2011 est.)
note: data are in 2013 US dollars

Gross national saving

24.4% of GDP (2013 est.)

25.2% of GDP (2012 est.)
25.1% of GDP (2011 est.)

GDP - composition, by end

use

household consumption: 54.6%

government consumption: 17.8%
investment in fixed capital: 27.4%
investment in inventories: 0.1%
exports of goods and services: 20.9%
imports of goods and services: -20.8%
(2013 est.)

GDP - composition by
sector

agriculture: 3.8%
industry: 27.4%
services: 68.7% (2013 est.)

Population below poverty

line

NA%

Labor force

12.44 million (2013 est.)

Labor force - by occupation

agriculture: 3.6%
industry: 21.1%
services: 75% (2009 est.)

Unemployment rate

5.7% (2013 est.)

5.2% (2012 est.)

Unemployment, youth
ages 15-24

total: 11.7%
male: 12.4%
female: 11% (2012)

Household income or
consumption by
percentage share

lowest 10%: 2%
highest 10%: 25.4% (1994)

22

Distribution of family
income - Gini index

30.3 (2008)
35.2 (1994)

Budget

revenues: $494.3 billion

expenditures: $514.4 billion (2013 est.)

Taxes and other revenues

33.2% of GDP (2013 est.)

Budget surplus (+) or

deficit (-)

-1.3% of GDP (2013 est.)

Public debt

32.6% of GDP (2013 est.)

32.4% of GDP (2012 est.)

Inflation rate (consumer

prices)

2.4% (2013 est.)

1.8% (2012 est.)

Central bank discount rate

3% (February 2013 est.)

4.35% (31 December 2010 est.)
note: this is the Reserve Bank of Australia's "cash rate
target," or policy rate

Commercial bank prime

lending rate

6.2% (31 December 2013 est.)

6.98% (31 December 2012 est.)

Stock of narrow money

$526.5 billion (31 December 2013 est.)

$534.8 billion (31 December 2012 est.)

Stock of broad money

$1.661 trillion (31 December 2013 est.)

$1.648 trillion (31 December 2012 est.)

Stock of domestic credit

$2.222 trillion (31 December 2013 est.)

$2.255 trillion (31 December 2012 est.)

Market value of publicly

traded shares

$NA (31 December 2012 est.)

$1.198 trillion (31 December 2011)
$1.455 trillion (31 December 2010 est.)

Agriculture - products

wheat, barley, sugarcane, fruits; cattle, sheep, poultry

Industries

mining, industrial and transportation equipment, food

processing, chemicals, steel

Industrial production
growth rate

3.2% (2013 est.)

Current Account Balance

-$44.9 billion (2013 est.)

23

-$57.14 billion (2012 est.)

Exports

$251.7 billion (2013 est.)

$257.9 billion (2012 est.)

Exports - commodities

coal, iron ore, gold, meat, wool, alumina, wheat,

machinery and transport equipment

Exports - partners

China 29.5%, Japan 19.3%, South Korea 8%, India

4.9% (2012)

Imports

$245.8 billion (2013 est.)

$263 billion (2012 est.)

Imports - commodities

machinery and transport equipment, computers and

office machines, telecommunication equipment and
parts; crude oil and petroleum products

Imports - partners

China 18.4%, US 11.7%, Japan 7.9%, Singapore 6%,

Germany 4.6%, Thailand 4.2%, South Korea 4.1%
(2012)

Reserves of foreign
exchange and gold

$48.8 billion (31 December 2013 est.)

$49.15 billion (31 December 2012 est.)

Debt - external

$1.506 trillion (31 December 2013 est.)

$1.497 trillion (31 December 2012 est.)

Stock of direct foreign

investment - at home

$661.6 billion (31 December 2013 est.)

$610.8 billion (31 December 2012 est.)

Stock of direct foreign

investment - abroad

$440.1 billion (31 December 2013 est.)

$426 billion (31 December 2012 est.)

Exchange rates

Australian dollars (AUD) per US dollar 1.031 (2013 est.)

0.9658 (2012 est.)
1.0902 (2010)
1.2822 (2009)
1.2059 (2008)

Fiscal year

1 July - 30 June

24

Milestone 4:

SWOT Analysis
Developing a plan for Australia's economic prosperity, we
analyse the outlook for the Australian economy over the next century in a novel
way; taking a SWOT analysis a tool more commonly used in business planning
and strategy, and applying it to a nation.

By considering the strengths, weaknesses, opportunities and

threats facing Australia, we ask what such an analysis can tell us
about the Australian economy, now and in the future, and what
policy responses we should be developing now. The table below
summarises our high level perspective.
Strengths
We've enjoyed the fruits of a high-performing economy and
growing living standards, and developed the confidence that
comes with having strutted through a global economic crisis with
barely a scuffed shoe. Thanks to some fundamental strengths
underpinning the Australian economy, things are going well.
S1 SOUND ECONOMIC POLICY
S2 STRONG AND RESILIENT ECONOMY
S3 GEOGRAPHY, NATURAL ENDOWMENTS AND EMERGING ASIA

Weakness
Weaknesses can't always be overcome, but it's imperative that they are
understood and acknowledgede in planning. So what limitations are we facing right now and into
the future?
W1 PRODUCTIVITY GROWTH
W2 STATE & FEDERAL RELATIONS AND TAX TRANSFER SYSTEM
W3 INFRASTRUCTURE DEFICIT

Opportunities
25

By any measure or comparison, the Australian economy is

performing well. But Australians are living through a period of
great global economic, technological, political and social change,
and we simply can't expect that the way things are now is they
way they always will be. So what are the big opportunities for
Australia in the future?
O1 GLOBAL ECONOMIC STRUCTURAL CHANGE
O2 SEIZE THE OPPORTUNITY FOR REFORM
O3 GREATER DIPLOMATIC ROLE
Threats
We live in a competitive, globalised world and threats to our
economy and future prosperity can come from elsewhere as well
as from within. So what threats must we be aware of, and seek to
mitigate, in planning for our future?
T1 EXTERNAL ECONOMIC THREATS
T2 FISCAL SUSTAINABILITY
T3 CLIMATE CHANGE

26

Milestone 5:Analysis and finding

Australias Economic Forecast
Spurred by robust business and consumer confidence, Australias economy is expected
to grow even quicker in the next five years. 2011 to 2015 should see Australias
GDP (PPP) grow by 4.81 to 5.09 percent annually. By the end of 2015,
Australias GDP (PPP) is expected to be US$1.122 trillion.
Likewise, Australias GDP (PPP) per capita is expected to experience healthy growth. In
2010, Australias GDP (PPP) per capita was the tenth highest in the world
growing from US$38,633.17 in 2009 to US$39,692.06. In 2011, Australias GDP
(PPP) per capita will increase by 3.52 percent to US$41,089.17. The following four
years should see fairly consistent growth in Australias GDP (PPP) per capita, resulting
in a GDP (PPP) per capita of US$47,445.58 by the end of 2015.
However, despite Australias strong economic growth, Australias unemployment rate
has been relatively high. In 2010, Australias unemployment rate was 5.192
percent 0.22 percent more than the worlds average of 4.97 percent.
In an interview given before the May 2011 budget, Australias Treasurer and Deputy
Prime Minister, Wayne Swan, acknowledged that unemployment was unacceptably high
in certain parts of Australia and the government was looking to create new incentives
for more jobs. The May 2011 budget is expected to create 500,000 jobs in two years
and is aimed at bringing unemployment rates down to 4.5 percent.

Whether this budget will prove successful in bringing down unemployment rates
remains to be seen. According to the unemployment rate forecast provided by the IMF,
unemployment is only expected to see a marginal decrease to 5.025 percent by the

27

end of 2012. After which, the unemployment rate from 2013 to 2015 should remain
constant at 4.8 percent.

Findings
Australia has enjoyed an uninterrupted run of twenty-three
consecutive years of economic growth. All the more impressive
given that this period was straddled by the Global Financial Crisis
(GFC). Such an extraordinary feat involves a mix of good
management and good fortune. This continues today perhaps in
equal measure.
While the mining investment boom may have ended, the
capacity expansion has translated into materially higher volumes
that continue to drive exports. The Reserve Bank had been
concerned about the end of the mining investment boom for
some time and was hoping that lowering interest rates would
help lift consumption to supplant the decline in investment. As if
scripted, lower interest rates have led to appreciating asset
prices (shares and residential property) that have indeed given
households the confidence to spend once more.
The recent Federal Budget contained a number of unpopular
measures (including welfare cuts and a tax on high income
earners) that have temporarily dented consumer confidence. The
likely net impacts from the proposed initiatives however are likely
to be minor.
On balance the short term outlook remains positive. Low interest
rates are likely to continue to provide tailwinds to residential
housing construction. In addition, higher share and house prices
should continue to make consumers feel wealthier, supporting
consumption.
Despite this positive backdrop, an uneasiness persists for two
main reasons. Firstly, our long held view of the impending fallout
28

from China's debt fuelled residential construction and

infrastructure binge has become consensus. Losses on invested
capital have the potential to cause businesses and banks to fail
in China which would inevitably lead to a prolonged period of
much lower fixed asset investment. In turn, this is likely to
translate into lower demand for Australian raw materials,
including coal and iron ore. Further, any slowdown is likely to
have knock-on effects to China's major trading partners, reducing
global output potential.
Secondly, the increase in household consumption and residential
construction over the last 12 months remains on a rather fragile
footing. The resurgent consumer has been buoyed by higher
asset prices, the sustainability of which is questionable.
Sharemarkets are priced for perfection. Recent gains could easily
be eroded given the fragility of global growth and the serious
economic and geopolitical risks that abound. House price gains
too have been spurred by low interest rates rather than any real
fundamental and sustained improvement in incomes or wealth.
Expectations of further house price gains are probably unrealistic
given that house prices and debt levels remain amongst the
highest in the world when measured relative to incomes.
In conclusion, the Australian economy remains reasonably
positioned to record further growth in the short term.
Nevertheless, the drivers of growth are relatively fragile and so a
sustained multi- year growth cycle appears unlikely.

Global capital is scared and expensive

29

Although the quantity of global capital has recovered and even

surpassed levels from before the global financial crisis (estimated
at $240 trillion mid-2013), capital remains more risk averse than
pre-GFC.
The flow of cross-border capital has dropped 70% from the 2007
peak.
Capital also became more risk averse on a household level,
where investments in equity dropped in favour of holding funds
in deposits.
In the wake of the financial crisis, the allocation to equity has
dropped, and the allocation to deposits has increased.
Capital is more expensive to attract. Investments with similar risk
levels now demand higher returns than a few years ago. The
spread for A-rated corporate bonds has increased compared with
pre-crisis levels, implying that a higher risk premium is
demanded for the same levels of risk.
Looking ahead, it does not seem likely that the cost to attract
capital will decline.
This development can bring opportunities for Australian capital in
the form of increased potential returns and a broader variety of
investment opportunities.

30

High returns could be expected if there is excess domestic capital

willing to venture into global opportunities, while other countries
stick to home markets.
The infrastructure investment needs in Asia are massive,
requiring lots of funding. Indonesia, for example, needs more
than $300 billion in infrastructure investment.
However, risk averse and expensive capital brings threats as
well. If capital is not available or invested in low productive
alternatives, local enterprises become capital starved, which in
turn stifles growth.

In an optimistic scenario, Australia could become a

capital-exporting country. Its capital will generate healthy
returns in the global marketplace, the abundance of
31

investment opportunities will make diversification easier,

and the country would benefit from a healthy global
portfolio.
In a pessimistic scenario, domestic capital is locked up,
forcing Australia to import capital for which high returns
will be demanded. This will slow down investments and
lead to on average low returns, low innovation, and high
costs.
Key natural resources will become more scarce
Demand for energy, steel, food, and water has been growing over
the past several decades.
In the years to come, demand for natural resources will continue
to grow, putting more pressure on prices and potentially on
geopolitical stability.
The increase in demand is underpinned by a worldwide
population expansion and accelerated income growth in
emerging economies with up to three billion more middle-class
consumers expected by 2030.
Price volatility, which has already increased over the past
decade, is expected to continue to rise as a result of increasingly
harder-to-find resources and the use of more expensive
methodologies to source the supply.
32

For Australia, global scarcity of resources can be good news. If

the country can maintain its surplus of key resources,
opportunities will be plentiful.
As a resource-exporting country, Australia will be well-positioned
to profit from the increased global demand and higher prices on
global markets. Greater demand will also bring development
opportunities in various sectors, including agriculture and
infrastructure, which in turn will attract foreign investment.
In an optimistic scenario, Australia is a diversified resource
exporting country. The economy will benefit from domestic
resource availability and high export prices. Investments in and
innovation by resource sectors such as infrastructure, agriculture,
and mining will underpin economic growth. Innovation becomes a
competitive advantage and is leveraged on a global scale.
In a pessimistic scenario, Australia is no longer a pure exporter
but relies more on imports. More imports creates more exposure
to price volatility on global markets, which will add costs to
sectors of the economy and stifle growth. Constrained
investments lead to suboptimal resource productivity as a result
of a lack of technological developments and innovation.

33

MILESTONE 6
References
1. search.proquest.com
2. googlescholar.com
3. economy.com
4. australiangdp.org
5.tradingeconomics.com

34