Economics For Business: GDP Essay

Question:

Discuss about the Economics for Business for GDP.

Answer:

Introduction

The prime purpose of this study is to discuss the GDP (Gross Domestic Product) comparison between two countries. In order to elucidate the topic, the study has considered the countries Australia and China. Through elaborating two different economies of these countries, the study establishes a clear knowledge about the topic. In addition, the study discusses about the factors that affect the economy as well as GDP of these particular countries. However, the entire discussion is built by comparing and contrasting the Gross Domestic Product of Australia and China. Before entering the main discussion, it is essential to elaborate about the economies that present in those countries. It has been found that two different economies are present in Australia and China that includes Command Economy and Mixed Market Economy. As per the statement of Fleming and Measham (2015), mixed market economy is present in the country Australia. In order to more precise, in Australia, most of the economic planning and decision are taken by the private sectors. That means large number of households and several firms play a major role in the Australia’s economy and GDP growth. Government of that country is involved only in some crucial sectors. On the other way, command economy is present in the country China (Jun 2013). In order to elaborate it more, Jun (2013) stated that all the economic planning as well as decisions is made by the government of that country. The central power of that country is the one that takes the decisions of investment, production, supply of goods and services, and many more.

The human resource is the major factor that plays a crucial role in the GDP growth of a country (Baker, Merkert and Kamruzzaman 2015). In context of Australian economy, the curve of unemployment rate has been growing upward till the year 2015 (Refer to Appendix 1). However, in present the country is experiencing a decreasing unemployment rate. On the other way, the unemployment rate of China is in a stable situation (Refer to Appendix 2). Small proportion of increase and decrease has been found in the change of unemployment rate.

GDP Comparison Between Australia and China

In this section, the labor force of these two countries can be manifested more in order to establish the difference between these two countries. In Australia, the lowest percentage of total work force is involved in the agriculture sector that is estimated as 3.6% (Tradingeconomics.com. 2016). This is followed by the ratios involved in secondary sector and territory sector respectively. In the secondary sectors of Australia, 21.1% is employed (Tradingeconomics.com. 2016). The territory sector includes service sectors, tourism sectors and many more where 75% of workforce is engaged (Salahuddin and Alam 2015).

In the prior section, it has been mentioned that Australia has a mixed economy where the private sectors play the lead role. (Mclean 2016) added in this context that it is the largest mixed economy in the world. The country has been experiencing growth fluctuation over the past 5 years. Through the following table and graph, the GDP growth of Australia has been demonstrated.

Years

2015

2014

2013

2012

2011

GDP Growth Rate

2.48%

2.62%

2.04%

3.55%

2.68%

Table 1: GDP Growth Rate of Australia in past 5 years

(Source: Satistica.com. 2016)

Graph 1: GDP Growth Rate of Australia in past 5 years

(Source: Satistica.com. 2016)

The above table and graph illustrate that the GDP growth rate of Australia has been fluctuating over the past 5 years. In 2012, the country has experienced a large proportion of growth in GDP and in the following year 2013, it dropped down below than the rate of 2011. However, in the year of 2014, it was increased again but could not exceed the rate of 2011. In the last year 2015, the GDP growth rate has been declined again. Thus, it can be stated that Australia has been experiencing an unstable growth in their economy. However, the present financial record of Australia states that it contains 1.2% of the world economy (Ft.com. 2016). Focusing on the year 2015, it has been found that the growth rate was 0.6% as estimated in the last quarter (Tradingeconomics.com. 2016). It is important to mention that the rate was lower comparing to the previous quarter. It was 1.1% in the previous quarter (Tradingeconomics.com. 2016). Along with that, the economy has experienced a declining capital expenditure and private investment. In the year 2015, the private investment was dropped by 1.9% and capital expenditure was reduced by 0.6% (Tradingeconomics.com. 2016). It has been found that the new engineering construction of the country has been affected and this is the reason that the private investment has been decreasing overtime. In comparison to this, the public investment, import and export of that country was increased by 6% for each (Tradingeconomics.com. 2016). Furthermore, as per the measurement of 2015, the consumption expenditure and government expenditure were hiked up by same percentage that is 0.7% (Tradingeconomics.com. 2016). Besides, the expenditure on household commodities was increased by 0.8% (Tradingeconomics.com. 2016).

Meara et al. (2015) mentioned that Australia is the seventeenth largest economy as per the Purchasing Power Parity measurement and twelfth largest economy as per the Nominal GDP Measurement. The major strength of this economy lies on its import and export sector. In the world economy record, it is the nineteenth largest importer and exporter (Forbes.com. 2016). The ASE (Australian Security Exchange) and the South Pacific region is the largest stock exchange in the world economy (Ft.com. 2016). Here, it is important to mention that the Australian Security Exchange has acquired the fourteenth position of market capitalization (Ft.com. 2016). Some specific sectors are there that contribute major portion in the Australian GDP. It has been found that more than 1.3% of GDP was contributed by agriculture, fishing and forestry sector (Tradingeconomics.com. 2016). Recently, they have experienced a positive growth in the iron ore, coal, oil and gas industries. Moreover, the information and telecommunication sectors contributed more than 2.7% (Tradingeconomics.com. 2016). Along with that, 2.8% and 2.2% growth was contributed by the real estate services and recreation services respectively (Tradingeconomics.com. 2016). Apart from these sectors, decreasing growth rate has been experienced in other sectors. One of the major reasons of declining growth rate is the decrease in manufacturing sector. The production of petroleum, coal, chemicals and metal products has been diminishing. Moreover, the tobacco, food, and beverage production have been decreasing and this leads the GDP growth rate downward (Tradingeconomics.com. 2016).

As discussed by Beeson (2016), the major factors that affect the GDP of Australia includes human resources, prices of commodities, and outside the resource sectors. It has been mentioned before that the human resources play a prime role the growth of the economy. Besides the resource sector, the country has experienced slow growth in other sectors. This is the reason that the unemployment rate has been increasing till the year 2015. However, presently the country restrains the rate, but it is expected that the unemployment rate might be increased further. The rate has been increasing with the rate 6.2% (Satistica.com. 2016). In this context, it is important to mention that the economy has experienced higher rate of unemployment that exceeded their expected rate. This clears the fact that the labor force of the country remains under-utilized. Considerable slacks exist in the labor market as the workforce contributes fewer hours than they expect. As a result, the wages are restraining and hence their disposable income is also declining. Due to this reason, the consumption growth was minimized which adversely affects the growth of the economy. Sharp rise in terms of trade has been experienced in this economy over the past 10 years (Rees, Smith and Hall 2015). In this context, it is important to mention that by the ratio of export to import prices, the terms of trade of the country is determined. The higher bulk commodity prices contribute positive growth in the economy. Apart from this, it has been mentioned that the major strength of the economy lies on the resource sector. Thus, the high price of coal and iron ore leads the growth curve upward. Due to the presence of strong demand, large amount of these commodities are exported to many of the Asian countries including China (Refer to Appendix 3). However, Richards et al. (2015) explained that some sectors are there besides the resources sector that contribute positive growth in the GDP. More specifically, the residential construction has been growing rapidly that provide positive impact on the economy. However, residential development contains negligible share in the economy and thus the contribution seems insufficient. After the resource sector, the service sector has been considered as the second strongest and well established sector where continuous growth is noticed. It is important that, in the service sectors, the education and tourism sectors have been improving in a rapid manner (Rees, Smith and Hall 2015).

Unlike the Australian economy, even labor force distribution has been found in China (Tradingeconomics.com. 2016). Further the estimated percentages of labor force employed in the primary sector, territory sector, and secondary sector are 36.7%, 34.6%, and 28.7% respectively. However, the Chinese economy has experienced the slowest growth in the year 2015 (Xing and Pradhananga 2013). Popescu (2013) mentioned that it was the slowest in the last 25 years. In the below table and graph, the GDP growth of China has been illustrated, in context of past five years.

Years

2015

2014

2013

2012

2011

GDP Growth Rate

6.9%

7.3%

7.7%

7.7%

9.46%

Table 2: GDP Growth Rate of China in past 5 years

(Source: Satistica.com. 2016)

Graph 2: GDP Growth Rate of China in past 5 years

(Source: Satistica.com. 2016)

From the above table and graph, it has been noticed that the growth rate has been decreasing over the years. The growth rate was much higher in the year 2011, in comparison to the year of 2015. However, it is important to mention that the growth rate is comparatively higher in China than that of Australia. Furthermore, the economists of the country expect that the growth would slow down in the later years also. As per their expected estimation the growth rate will be 6.49% and 6.2% in 2016 and 2017 respectively (Mikosch and Zhang 2014). Furthermore, the growth rate would be stable at 6% in the years after 2017. In the first quarter of 2016, the growth rate was hiked up by 6.7% which is lies little below the rate of the previous quarter (Tradingeconomics.com. 2016). In the prior quarter, the rate was 6.8% (Tradingeconomics.com. 2016). Unlike the Australian economy, the growth in the mining sector acquired the third position in China. The estimated percentage of the contribution of mining sector is 3.1% (Forbes.com. 2016). In this economy, the manufacturing sector contributes the largest portion in the GDP growth. The outcome in manufacturing sector of this country was increased by 7.2% which positively affect the GDP (Forbes.com. 2016). After the manufacturing sector, the GDP growth strongly depends on the growth in the supply of water, gas and electricity. As per the financial record of the last year, this made 4.8% contribution in the Chinese economy (Tradingeconomics.com. 2016). The growth in the retail sales was hiked up from 10.2% to 10.5% in the first quarter of 2016 (Tradingeconomics.com. 2016). Before achieving the growth, the economists had expected that the rate would be increased up to 10.4% which has been exceeded (Tradingeconomics.com. 2016). Apart from this, the increasing growth in investment has been experienced in this economy. In property investment, the estimated growth was 6.2% and in fixed asset investment, it was 10.7% (Tradingeconomics.com. 2016). In this context the positive contribution has been outlined that is not sufficient to lead the growth curve upward.

Dreger and Zhang (2014) discussed that Chinese economy is the second largest economy as per the measurement of Nominal GDP. Furthermore, as per the measurement of purchasing power parity, it is the largest economy in the world. Among all the developing countries, the fastest economic growth and development has been noticed in China. Over 30 years, the country has experienced 10% average growth (Forbes.com. 2016). It has been mentioned before that the manufacturing sector contributes the major portion in GDP. Unlike Australian economy, China is one of the strongest manufacturing economy. Along with that, it is the second largest importer and largest exporter in the world economy (Ft.com. 2016). Mainly, the service products are imported from other nations to this country.

Haltmaier (2013) explained that some factors are there that affect the GDP growth of China. These factors include human resources, commodity prices, and outside the manufacturing sector. It has been noticed that the unemployment rate of this country has been increasing in a large proportion till the period of 2000s (Refer to Appendix 4). Afterwards, it came in a stable position. The growth rate defines that the economy failed to fully utilize their human resources in the previous period. However, in present, the human resources are utilized well but still the economy is experiencing low economic growth. Most of the labor force is engaged in the manufacturing sector. In the urban areas, the wage rate was increased by 15% which positively affect the economy of China (Ft.com. 2016). Besides the manufacturing sector, major issues are present in other sectors of that country. Behind the economic slowdown, the major reason was the declining growth in mining sector. It has been found that the issues regarding CO2 affect other production and thus it negatively affect the economy (Ft.com. 2016). Mainly this particular issue affects steel production, copper smelting and aluminum production (Ft.com. 2016).

Grinin, Tsirel and Korotayev (2015) elaborated the fact how the commodity price of that country affects its GDP. Behind the economic slowdown, the sharp fall in the commodity prices is pointed out as the major reason, by the economists. Since the year 2014, the economy has been experiencing decreasing commodity prices which negatively affected the GDP growth rate (Tradingeconomics.com. 2016). The country is the largest exporters and thus fall in commodity prices leads the growth curve downward. It has been found that in the early 2000s, the commodity price was higher and thus the economy was experiencing increasing growth during that period. It clears the fact that strong correlation is there in between the commodity prices and GDP growth rate of China. After 2011, the energy prices by 70%, metal prices by 50%, and agricultural commodity prices was reduced by 35%. This was the major change that led the growth rate to downwards (Tradingeconomics.com. 2016). Moreover, large amount of the commodities wheat, beef and sugar are exported to many of the countries. Fall in the prices of those commodities caused slow economic growth (Nie 2016). Besides, the economy exports 12% of their crude oil and 5% of natural gas (Tradingeconomics.com. 2016). The price of natural gas was dropped down by 55% and the natural oil was reduced by 73% (Tradingeconomics.com. 2016). This price fluctuation is the prime cause of their mismanaged inventory which affect their export market. As a result, the GDP growth of this country is affect to a larger extent. In order to differentiate the growth of China and Australia, a strongest example can be shown through a context. Nie (2016) mentioned that the largest portion of iron ore China exports from Australia. Thus, the Australian economy becomes more stronger, and the large expenses lead the Chinese growth downward. Further, it has been found that the research and development expenditure in both the countries has been increasing with different proportions (Refer to Appendix 5).

Conclusion

The above discussion concludes that Australia has been experiencing positive economic growth, whereas China's economic growth has been slowing down. In Australia's increasing GDP growth, mining sector play the vital role. On contrast, China's manufacturing sector contributes positive growth in their GDP. Though, it has been found the growth is not sufficient to lead the GDP curve upward. In comparison with Chinese economy, Australia's manufacturing sector is not that much strong. Moreover, decreasing growth has been found in the manufacturing sector of Australia that negatively affect the economy. On the other way, the mining sector of China is not as strong as that of Australia. Large portion of iron ore is exported by Australia to China which benefitted the Australian economy and affected the Chinese economy as well. The study brings out many differences between the economy of Australia and China. The major differences can be highlighted in this portion that helps to conclude the entire discussion. As per the measurement of purchasing power parity, China is the largest economy, whereas Australia is in the seventeenth position in the world economy. In terms of export and import, Australia acquired the nineteenth position, whereas, China is in first and second position respectively. However, the major difference is the Australian economy is expected to increase further and Chinese economy is expected to slow down.

Reference List

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