The global economy has experienced considerable dynamics over the years, with several countries consistently playing the role of the dominant and leading economies and new countries coming into the global scenario with the impressive performances in many of the economic aspects in the contemporary period (Anderson 2014). The economic progress of these economies can be seen from their impressive performances in the broadly used indicators of economic growth like that of the Gross Domestic Product, the per-capita GDP and Purchasing power adjusted GDP, exchange rates and other similar indicators.
Keeping this into consideration, the report tries to discuss about the economic growth trends of two of the most significant and dominant players in the global economic scenario, the economy of Australia and that of China (Ljungqvist and Sargent 2012). Both the economies have their own economic growth and development trends and experiencing considerable dynamics in their growth path over the years. Taking this into account the report tries to compare and contrast the economic trends of the concerned countries and also tries to analyze the causes behind the differences between the growth pattern of both the countries in terms of the different concepts prevailing in this aspect (Wickens 2012).
Economies of Australia and China
Australia: Economic Overview
The economy of Australia has consistently remained as one of the significant and dominant players in the global economic scenario, with its robust economic growth. Much of the growth and economic well-being of the country can be attributed to the highly developed industrial and commercial sectors, reliable and long-term trade relations with many other dominant economies in the world and increasing scopes of skill development leading to an increased productivity of the workforce. All these have contributed in creating high standard of living for the residents of the country. With a nominal GDP of $1.390 trillion (2017), the country ranks thirteenth globally in terms of nominal GDP and is one of the largest and most successful mixed economies in the world (Dyster and Meredith 2012). This implies that in the there are considerable presence of both market economy as well as government control in the economic framework of the country. These cumulatively make the country competitive as well as considerably stable, thereby contributing in increasing its capacity to tackle the global economic turmoil like Great Depressions and recessions, which affected almost all the economies of the world. However, the economic growth of the country has slowed down considerably in the last few years, with drastic decline in the mining sector, bursting of the residential investment bubble, banking crisis and others which have left long lasting effects on the economy (Plummer and Tont 2013).
China: Economic Overview
While the economy of Australia portrays the characteristics of a consistently stable one over the years, the economy of China, on the other hand, has emerged as one of the largest economies of the world in the contemporary global economic framework with spectacular trends in economic growth and other indicators of economic well being. Being the most prominent social economy, the country ranks second in terms of global nominal GDP, the nominal GDP being $11.9 trillion (2017). Much of the economic growth has been accrued to the country after its economic reform and implementation of an open economic policy structure in 1978. From 1978 until now, the country has experience an ever-increasing trend in its GDP, with its booming industrial sector and unprecedented technological progress. Over the years, the country has been gradually shifting from a planned economy to a market based economy, which has also contributed to the dynamics in its economy (Shambaug 2013).
Taking into consideration the economic growth trends of the two countries, the following section of the report tries to compare the economies of Australia and China, analyze and interpret their growth trends and fluctuations in terms of the exiting concepts and indicators of economic growth.
Comparison of economies of Australia and China
GDP growth of Australia and China
The primary and most widely used indicator for comparing the economic growth of any teo countries is the growth of the GDP of the concerned countries over time. The GDP being the sum of the values of all the goods and services produced within the geographical boundaries of any country within one economic year, the dynamics in the same broadly depicts how the concerned country has progressed in terms of economic growth (Coyle 2015).
Figure 1: Growth of GDP of Australia and China (2012-2016)
As can be seen from the above figure, there exists remarkable difference between the growth of the Gross Domestic Product of that of the two countries with time. The trends show that the gap between the GDP of both the countries increased strikingly within a period of 2012 to2016. To understand and explain the difference in the growth pattern of GDP between the two countries, it is of utmost importance to observe the GDP trends for a bigger time span, as shown in the following figure:
Figure 2: GDP growth of Australia and China (1992-2016)
From the above figure it can be clearly asserted that though both the concerned countries were more or less at the same level of GDP in 1992, China progressed immensely in the following period while Australia did not show any noticeable growth in GDP till 2012. Even in 2012, the growth of GDP in Australia was minimal. China on the other hand experienced an increasing rate in the increase of GDP until 2015, with the GDP growing, but at a decreasing rate post 2015. Thus, it can be asserted that the economic growth of China has been impressively higher than that of Australia and while the former experienced huge increase in the growth, the growth of the latter was majorly stalled.
However, comparison of the economic well being of countries with respect to the growth of GDP only can lead to over generalization of the actual economic well being as there are many factors, which are not taken into account by the nominal GDP indicator. The nominal GDP, measured in terms of exchange rates does not take into account the actual cost of living and purchasing powers of the countries, for which GDP is often calculated taking into account the Purchasing Power Parity aspect.
PPP Adjusted GDP growth of Australia and China
According to the PPP concept, the exchange rates among any countries are in equilibrium when the residents of the concerned countries enjoy same purchasing power. Therefore, a more authentic way of comparing the economic growth of Australia and China is to compare the PPP adjusted GDP of the two countries over the concerned period of time, which is shown in the following figure:
Figure 3: PPP adjusted GDP growth of Australia and China (2012-2016)
The gap between the economic growth of the two countries in concern becomes even more striking when the PPP adjusted GDP of the two countries in concern, with the same increasing at a constant rate for China and remaining almost same over the years for Australia. This in turn implies that over the years, in terms of real growth variables, the purchasing power adjusted GDP of the China has stably increased while the same has not seen any increment in case of Australia, thereby implying that Australia has been experiencing stagnancy in its economic growth while the same trends are impressive in case of China.
The growth of GDP or PPP adjusted GDP shows the macroeconomic progress of a country over time and does not show the individual economic welfare accrued to the individual residents of the country in particular. For analyzing the same, it is therefore important to study the growth of the per-capita GDP of the concerned country.
Per-Capita GDP of Australia and China
Figure 4: Per-Capita GDP of Australia and China (In thousands) (2012-2016)
The above figure, showing the growth in the per-capita GDP of Australia and China, shows a striking difference from the growth trends of nominal GDP or PPP adjusted GDP of both the countries. While the GDP statistics show that China has been growing extensively higher than that of Australia, however, the per capita GDP of Australia is found to be consistently higher than that of China, with the former leading the latter by a visible magnitude over the years. The gap has however decreased to some extent in the last few years with Australia still enjoying significantly higher per capita GDP than that of China.
This anomaly between the GDP and GDP per capita of both the countries can be explained with the help of the trends in the population growth of the concerned countries in the given period:
Figure 5: Population growth (In billions) in Australia and China (2012-2016)
As is evident from the above figure, the population of Australia has maintained a stable pattern in the last few years while the same has seen a visibly increasing trend in China. The population in China being considerably higher than that of Australia, the per capita GDP of the latter is significantly lower than that of the former even though the Australia GDP (both nominal as well as PPP adjusted) is considerably higher than that of China. This partially explains the anomaly between the per capita and the PPP adjusted GDP growth of the two countries (Jolliffe and Prydz 2015).
Figure 6: Consumption Expenditures in Australia and China (2012-2016)
The consumption expenditure in China has considerably increased in the last few years, while the same has decreased to some extent in the last two years in Australia. Consumption being a part of the GDP accounting, therefore, also contributes as an explaining factor in the differences between the GDP growth of the two countries over the years.
These dynamics in the consumption patter of both the countries can be linked to the economic theory of business cycles.
Figure 7: Business Cycle in an Economy
(Source: As created by the author)
As per the business cycle theory, Australia has been going through an early recovery phase in the current period as the economy was subjected to issues like withering out of the mining boom effects, bank and financial crisis and even crisis in the housing sector. On the other hand, the economy of China had been experiencing boom for the last few years which reflects in their GDP statistics (Gabisch and Lorenz 2013).
From the above discussion it can be concluded that thought both the economies of Australia and China have remained the significant players in the global economic framework in the last few years, however, the growth pattern of China has been more impressive and aggressive than that of Australia in the current period. Much of the same can be attributed to the boom which the latter has been experiencing in its industrial, commercial and trade sector while the latter has been experiencing a slow-down in its growth trends due to the economic shocks borne by the same in the last few years and their lasting negative implications on the economy.
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