The Definition and Significance of Gross Domestic Product (GDP)

Discuss about the Infrastructure and Regional Development System.

Primarily, the gross domestic product of any country implies the value of commodities and services provided by a given country over a period of time. Usually the period is one year .Over the years, the Australian gross domestic product has experienced some changes.  The Australian economic significance to the global economy cannot be ignored. The GDP of the Australian state has slowly but steadily over the years. The growth of economic activity has made some industries grow such as the agriculture, mining and services sectors which have greatly contributed to the GDP growth rate .Majorly ,the reasons for some of the industry’s growth has been due to increase in commodity prices, labor market flexibility, increased demand and newer markets for the produce. The Australian economic policies have been put in place to support and sustain economic growth in the country. Essentially, the Australian government has implemented monetary and fiscal measures to boost its economic activity which in turn translates into economic activity. Fiscal policies such as taxation incentives have been implemented to encourage investment in both private and public Australian sectors of the economy management.

Noteworthy, the Australian gross domestic product grew by 0.4 % below market forecasts. The Dec 2017, quarterly update shows a decline in the GDP growth rate from 2016 September Quarterly performance. The decline in growth is attributed to consumption spending and construction sectors of the economy .Particularly, the Australian economy gross domestic product growth rate is averaged at 0.85 % between the year 1959 and 2017 having reached a 4.4% high note  in 1976 and 2% low note in 1974.The slow pace of economic growth is attributed to the reduced exportation volume of goods which went down by 1.8%  and reduced private investment levels by 2.2%.However,there was substantial increases in various sectors of the Australian economy which contributed to the slight gross domestic product growth index. Specifically, in the year 2017-18, public sector investment s rose by 2.9%, importation of goods and services rose by 0.5%, mining by 1.3% and the construction sector by 0.3%respectively (Trading economics 2018).The respective industry increases have contributed to the economic activity index in the country hence the increase in the country’s gross domestic product.

Notably, the Australian GDP growth levels for the year 2017 stood at 2.4% which was a decline from the 2016 gross domestic product growth level (Letts 2018).The decline is attributed to low household income and consumption of the Australian population .Equally, low productivity levels were responsible for the declined growth rate. Specifically, the months between January and March 2017, experienced slow economic activity due to the low export volume. However, the GDP grew by 0.3% as at the end of March 2017 which was a reduction from the 1.1 % growth as at December 2016.According to the Australian Bureau of Statistics, the low grow rate was due to the bad climatic conditions which had preceded the previous cycle. The harsh climatic conditions crippled the exportation volume thus the reduced revenue. Towards the last quarter of 2016, the Australian gross domestic product grew due to the rise in the global prices of commodities (Smyth 2017).The global prices of goods and services affects the domestic prices of goods and services. Global commodity prices include prices of energy sources such as oil, natural gas among other global commodities.

Trends in Australian GDP Growth

Particularly, the Australian 2016 Gross domestic product grew by 1.1% as at the fourth quarter of the year as per the Bureau of Statistic figures. During the first quarter, the Australian GDP experienced a contraction from 3.3 to 1.8 percent. The decline in GDP growth rate was due to the unfavorable tax regime ,low investment levels and low labor participation levels(Hutchens 2017].Also, reduced government expenditure and exportation modules are responsible for the slow GDP growth rate in Australia in the year 2016.According to the ABS charts, the gross domestic product of Australia in 2015 increased in the year 2016.However,there was a decline in gross domestic product  decrease between  the year 2015 and 2014 respectively(Focus Economics 2017].Australia’s economic performance rose between the year 2013 and he year 2014. Using the gross domestic product, the economic health of an economy can be evaluated thus the importance of GDP to an economy. Most countries in the world, use the gross domestic product to determine the worth and competitiveness of countries against each other at the global level. The gross domestic product is an important economic welfare measure tool, globally.

 Specifically, the Australian Gross domestic product rose by 2.5 % between 2013 and 2014(ABS 2014).The expansion of the economy is attributed to the rise in the disposable income (national), by 1.3 per cent and significant fall in trade terms by 3.7 percent, increased productivity levels by 1.9%, increased exportation levels by 2.2 percent, increased public expenditure by 2.4 percent among other contributing factors. Since the year 2013, the Australian gross domestic product index has been rising and falling at a steady pace as per the respective economic conditions. The Gross domestic product fell from the year 2014 to the year 2015 due to the prevailing economic conditions of high inflationary pressures and the depreciation rate of the Australian dollar. However, the rate of economic activity increased between 2015 and 2016 due to better economic conditions thus the rise in the gross domestic product as illustrated in the above figure 2.Since the year 2016, the gross domestic product of Australia has been growing though at a much slower pace .In as much as the Australian GDP fell, the government implemented fiscal and monetary policies which have continuously boosted the Australian economic activity.

Owing to the economic industry decline in some of its industries, the Australian government has implemented various fiscal and monetary policies to boost the economic growth rate of the country (Dolomore N .d). The Australian government implemented tax reforms through the abolishment of the mining and carbon taxes to boost investment into the sector. This tax reforms encouraged more investment into the mining sector which led to the economic growth of the mining industry and its contribution to the gross domestic product (“Australia: 27….N .d).In addition to increased investment in various industries of the Australian economy, the Australian government has increased physical infrastructure investment to create an enabling business environment for local and foreign business investments. Better infrastructure is an attractive incentive for the economic expansion of existing business opportunities and a magnet for upcoming business enterprises thus leading to economic growth rates in the different Australian states. Good infrastructure facilitates business activities thus through investing in public infrastructure, the Australian government is promoting Australia as an important trading destination thus more foreign investments management.

Factors Affecting Australian GDP Growth

In an effort to boost employment levels in the country, the Australian government has tightened welfare programs to act as an incentive for employment opportunities. This welfare incentives are accrued to employed population. In the event that most of the Australian population is employed, not only will their economic livelihood increase but also the country’s revenue. In fostering its economic growth rate ,the Australian government tis committed to a ten year enterprise tax plan which is aimed at boosting investment through low taxation rates for businesses(Growth strategy 2017).Under the tax plan ,corporate taxes have significant reduced to encourage further investment and expansion of businesses to grow its economy. Also, through the National Innovation and Science Agenda, the Australian government is promoting research and development in its key economic industries to boost their performance which will in turn grow the economy. The Australian government has committed funds for research and development so as to promote efficiency, productivity and maximize competitiveness of its products and services for better economic performance and revenue.

In addition to corporate tax concessions, the Australian government has an averaging tax system of income tax for primary producers (Department of infrastructure and regional development 2018).Australia’s strong macroeconomic policies are responsible for the economic performance of the country due to its ability to affect private and public income expenditures. Under monetary policies, the Australian government through the Reserve Bank has managed to contain favorable interest rates .Lower interest rates have encouraged investment rather than saving thus creating more employment opportunities, increased production of goods and services which stimulate demand for goods and services and in return generate revenue (Dolomore N. d).The Australian financial structural reforms has made the Australian economy stronger to economic shocks .In addition, the Australian economy was not adversely affected by the global financial crisis with all the credit going to its strong internal financial system(Reserve Bank of Australia 2011).The Australian central bank is responsible for controlling inflation and interest rates so as to keep the economic conditions of the country enabling to investment and other economic activity thus promoting economic growth in the country.

Moreover, the Australian government is expected to raise it policy rate through the Reserve bank towards the 2^nd quarter of 2018 to quell the housing boom in the country. Also, the government seeks to fill its budgetary deficit so as to promote public expenditure and investment thereby boosting economic activity (O.E.C.D  2017).Currently, the existing trade terms are very supportive to the Australian economic growth. In order to maintain, its economic growth rate the Australian government needs to keep evaluating the current fiscal and monetary policies according to the dynamic economic changes in the country and the global market. There is need for a balanced monetary and fiscal policies to sustain the economic growth (Pettinger 2017).The Australian government needs to stimulate local demand for its products through technology, create an enabling business environment through political stability, good infrastructure, tax incentives and other benefits for investment in both public and public sector to create more employment opportunities to further grow its economy. The Australian government is always negotiating trade terms which are beneficial to the Australian population and country.

The Impact of Fiscal and Monetary Policies on Australian GDP Growth

According to the ABRES statistics 2016-17, agriculture is the largest Australian gross domestic product growth contributor by being responsible for 0.5% of the overall 1.9 % gross domestic product growth levels (Johnson 2017).The value of agricultural produce for the year 2017-18 is estimated to be sixty-two point eight billion dollars. The agricultural industry growth rate is boosted by several factors. Generally, the Australian agriculture industry grew by 23% in the year 2017-18 and was considered the leading industry for the given period. Substantially, the boost was due to the growth in grain production and livestock performance. Agricultural exports were valued above fifty billion. Increased market shares for Australian agricultural produce has also contributed to the incre3ased sector growth rate. The largest Australian produce market is the Chinese economy which is growing faster and likely to overtake the American economy. The expansion of the market for Australian market has triggered more production of exports thus boosting its economic value, revenue and employment opportunities thus growing its industries.

In addition to the increased market share, the growth of the Australian agricultural industry has been boosted by the high wheat and barley production and growth in the dairy farming market .Also, increased productivity levels in the Australian agricultural sector has contributed to the growth of the industry .The productivity has brought about proper utilization of the produce and made them more competitive to the global market hence the industry performance. Substantially, Research and development initiatives has also played a crucial role in the development and growth of the Australian agricultural sector. Better farming and storage techniques have been developed in the agricultural sector thus making the Australian produce more competitive to the world. Usually, better technology produces better goods hence boosting the sales and production .Environment friendly, newer farming and storage technologies have made the farming industry in the country to perform better. Wastage of agricultural produce has been reduced through better farming and storage techniques whereas technological based farming practices have helped produce better quality produce using environment friendly practices (Langridge 2014).

Despite the challenges facing the manufacturing industry in the past five years, the industry if facing better times (Hutchens 2017).This recent growth in the Australian manufacturing industry is attributed to the productivity increases and more employment opportunities that have arisen in the sector .Recently, the Australian manufacturing industry has created forty thousand employment opportunities in the year 2017.Alongside these factors, government financial aids has helped revived the prospects for the manufacturing sector. Manufacturing is one of Australia’s key industries. Equally, the increased value of Australian manufactured products has contributed to the economy recovery of the manufacturing industry hence the growth. Specifically, the value of Australian manufactured products has risen from eight billion dollars to a hundred billion dollars between 2009 and 2016(Hutchens 2017).Through increased employment levels in the manufacturing industry, production levels have increased thereby leading to an upsurge in the manufacturing revenue contribution to the country’s gross domestic product. Increased revenue in the respective industry amounts to an increase in the gross domestic product of the given country.

Strategies for Boosting Australian Economic Growth Through Tax Reform and Physical Infrastructure Investment

Notably, the mining industry was the best performing Australian industry in the year 2013.Mining accounted for 1.2 percent of the Australian GDP.Primarily, the mining industry is expected to grow by 5.5 from 2.5 in 2018 and 2016 respectively (Pash 2017).The growth in the mining industry will be boosted by the growing commodity prices on the global front and newer investments into the sector .The fact that the Australian economy is endowed with notable precious natural resources such as iron ore,titanium, copper and other metals has boosted the mining industry performance. The abundant availability of these natural metals has attracted investment from foreign nations which has boosted the performance of the sector through revenue and employment opportunities. The mining industry employment participation levels have increased due to the abundance in resources and investment opportunities. In the year 2016, the mining industry production increased by 2.5 percent as per the ABS Accounts data. The abundance of natural resources has created an investment opportunity for foreign countries and an exportation business for Australia thus leading to more economic activity in the mining and exportation sectors of the Australian economy.

According to theBix oxford estimates the mining industry as illustrated in the figure below.Mining sector progress is being supported by growth in global prices thereby increasing the revenue in this Australian sector.The increase in commodity prices has created a  production shift in the mining industry.Majorly,the rising performance of the Australian mining sector can be attributed to the favorable labor trends,availability of raw materials  and inccreased investment into the mining sector.Substantial foreign direct investment into the Australian mining industry has boosted the performance of the industry.The Australian mining industry experienced  a substantial boom in the year 2003 which was prompted by the increased commodity prices and demand from the Chinese plus other Asian nations.This demand made the Australian mining industry more lucrative to invest in and boosted the revenue marging thus the growth in the industry. According to the Ibis World website, the Australian service sector has significantly grown over the past five years (Ruthven 2016).

Particularly, the service industry accounted for 76 percent of the Australian GDP growth rate. The manufacturing and construction industries contributed 57.9 and 4.5 percent respectively. Majorly, Service delivery has been the main industry whose revenue has expanded consistently over the past five years. There is increased demand for the Australian service industry, domestically and globally thus the rise in the service industry performance .The Australian population consumption of the service industry has increased thereby leading to the upsurge performance. Particularly, Tasmania tourism industry which flourishes on the service industry has contributed to the growth of the service delivery implementation industry .The income rise in the Australian household income may have contributed to the boost in the industry due to the fact that household expenditure are mainly service based. These household expenditure might be in terms of health, food and educational services thus boosting the demand and expenditure of service sector.

The National Innovation and Science Agenda: Promoting Research and Development

Conclusion

Overall, the Australian economy gross domestic product has grown over the years due to increased demand for Australian products, newer markets, rice in commodity prices and better fiscal and monetary policy. Despite the economic challenges in the country and at the global front, the Australian economy has weathered due to its stronger financial structure, tax reforms and flexible monetary policies. Over the past five years, the Australian gross domestic product has grown though at a steady but slower pace .Among the largest industry contributors to the Australian gross domestic product rate are the mining, agriculture, manufacturing and service industry which are driven by demand. The increased level of productivity and production in the agriculture industry has greatly boosted the performance of the sector and its contribution to the gross domestic product of the Australian economy. Further economic growth depends on the macroeconomic and microeconomic policies being implemented by the Australian government, be they expansionary or contractionary depending on the economic conditions of the time. All in all, the economic performance of the Australian government is steadily rising thus increasing its gross domestic product growing rate and revenue.

References

ABS. (2014).Australian System of National Accounts, 2013-14.Government of Australia. [Online].Available at https://www.focus-economics.com/country-indicator/australia/gdp[Accessed 15 May 2018]

Australia: 27 years of Economic growth and counting. (2018).Foreign Policy.Com. [Online]].Available at https://foreignpolicy.com/sponsored/australia-27-years-of-economic-growth-and-counting/[Accessed 15 May 2018]

Department of Infrastructure and regional development. (2017).Treasury: Regional Australia-Driving our economy 2017-18.Australian Government. [Online].Available at https://infrastructure.gov.au/department/statements/2017_2018/ministerial-statement/treasury.aspx[Accessed 15 May 2018]

Dolomore, R. (N .d).The Australian Economy-Supporting the transition .Parliament of Australia .[Online].Available at https://infrastructure.gov.au/department/statements/2017_2018/ministerial-statement/treasury.aspx[Accessed 15 May 2018]

Dolomore, R. (N. d).The tools of Macroeconomic policy-a short primer .Parliament of Australia. [Online].Available at https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BriefingBook44p/MacroeconomicPolicy[Accessed 15 May 2017]

Focus Economics. (2017).Australia GDP .Focus Economics [Online].Available at https://www.focus-economics.com/country-indicator/australia/gdp[Accessed 15 May 2018]

Growth strategy Australia. .(2017).G20summmit.[Online].Available at https://www.bundesfinanzministerium.de/Content/DE/Downloads/G20-Dokumente/Hamburg_Wachstumsstrategien/AUS-Growth-Strategy.pdf?__blob=publicationFile&v=4[Accessed 15 May 2018]

Hutchens, G. (2016).”Australian GDP: Economy shrinks by 0.5% in September Quarter”, The Guardian, 6 December .Available at 15 May 2018]

Hutchens, G. (2017).”Australia’s manufacturing industry on rebound, report says”. The Guardian,20 June, Available at https://www.theguardian.com/business/2017/jun/21/australias-manufacturing-industry-on-rebound-report-says[Accessed 15 May 2018]

Johnson, R. (2017).Agriculture is now the powerhouse driving economic growth in Australia. [Agri.com. [Online].Available at https://www.agri.com.au/agriculture-is-now-the-powerhouse-driving-economic-growth-in-australia/[Accessed 15 May 2018]

Langridge, P (2014).Agriculture in Australia: Growing more than our farming Future. The Conversation. [Online].July, 15.Available at https://theconversation.com/agriculture-in-australia-growing-more-than-our-farming-future-22843[Accessed 15 May 2017]

Letts, S. (2018).”Australia’s economy grew by 2.4 percent in 2017, below expectations”. ABC News, 7 March .Available at https://www.abc.net.au/news/2018-03-07/gdp-q4-2017/9522450[Accessed 15 May 2018]

O.E.C.D. (N .d).Australia.O.E.C.D.Org. [Online].Available at https://www.oecd.org/eco/outlook/economic-forecast-summary-australia-oecd-economic-outlook.pdf[Accessed 15 May 2018]

Pash, C. (2017).Australia’s Mining sector is about to take off again. Business Insider. [Online].Available at https://www.businessinsider.com.au/australias-mining-sector-is-about-to-take-off-again-2017-12[Accessed 15 May 2018]

Pettinger, T. (2017).Policies for reducing Unemployment.Economicshelp.Org. [Online].Available at https://www.economicshelp.org/blog/3881/economics/policies-for-reducing-unemployment/[Accessed 15 May 2018]

Reserve Bank of Australia. (2011), The Australian economy in the 2000s.Government of Australia,[Online].Available at https://www.rba.gov.au/publications/confs/2011/pdf/conf-vol-2011.pdf[Accessed  15 May 2018]

Ruthven, R. (2016).Australia’s Growth industries. Ibis world. [Online].Available at https://www.ibisworld.com.au/media/2016/08/10/australias-growth-industries/[Accessed 15 May 2018]

Smyth ,J & Wells, P.(2017).Australia GDP growth of 0.3 slowest since 2009.Financial Times.[Online].June  7.Available at https://www.ft.com/content/61bd1d02-4b38-11e7-919a-1e14ce4af89b[Accessed 15 May 2018]

Smyth, J. (2017).”Australia bounces back to robust GDP Growth”. Financial Times. [Online].March 1.Available at https://www.ft.com/content/3d8910fe-fe1b-11e6-96f8-3700c5664d30[Accessed 15 May 2018]

Trading Economics. (2018).Australia GDP Growth Rate. Trading Economics.Com. [Online].Available at https://tradingeconomics.com/australia/gdp-growth.[Accessed 15 May 2018]