Research Task – Compare the Economies of China and Australia
GDP growth rates of Australia (2005-2018)
As shown in the former above graph, Australia’s Economic Performance (as measured by GDP growth) has a very steady trend, and even though it fluctuates massively over the measured period, it’s current growth rate is only a quarter of a percent lower than it’s growth rate in 2005. It’s overall trend has remained only slightly under the government's targets due to a number of unexpected circumstances including the Global Financial Crisis and a number of weather related crisis. Australia’s economy is performing very highly, being one of the best in the world currently, and has gone over 26 years without a recession, the record for the longest run of uninterrupted growth in the developed world.
The performance of the Economy starts off strong, with a rise in growth from 0.6% in 2005 to 1.5% in early 2007 and while there are two data points that lie outside this trendline the overall growth increase during this period was high. However this strong start is sharply contrasted by a well defined downward trend from mid 2007 to the end of the Global Financial Crisis towards the end of 2008.
After this period the data shows a fast and pronounced bounce back followed by an upward trend from early 2009 to late 2011 with the single exception of a sudden decrease to 0.2% and an immediate recovery just before the end of the trend in mid-late 2011. After this period the performance of the economy retains its gradual upward trajectory, while growth declines from 1.3% to 0.4% in the next 2 and a half years. Moving towards the end of this graph we see that growth fluctuates a lot, bouncing around with highs of 1% and a low of -0.2% in late 2016. Despite this fluctuation, the overall trend of the data remains steady, as expected due to Australia's unique economy.
The strong upward trend from 2005-2007 was caused by the Mining Boom, the rising value of the Australian Dollar and the introduction of the Goods and Services Tax which increased investment in housing. The data points that lie outside this trend were caused by Australia's (at the time) close relationship with America and their recession. However due to the strength of Australia's growth it was able to avoid a recession.
The sharp downward trend from 2007-2008 was caused by the fallout of the American Housing Market – due to the housing bubble being burst – and billions of dollars of bad debt causing uncertainty and ruining millions of peoples lives. This financial calamity is now known as the Global Financial Crisis or the GFC.
Luckily however the Australian economy was able to pick itself up unlike many other global economies due the the Rudd Government's Household package which gave $900 AUD to every eligible middle-class family which incited high spending and consequently drove increased economic activity, bringing GDP growth back up to 1.1%, as expected by the government planners who were behind the policy.
This Fiscal Response Policy was based on the motto “Go Early, Go Hard, Go Households” that was devised by Head of the Treasury and member of the Reserve Bank Board Dr Ken Henry, and predictions that utilised the economic concepts laid out by the Circular Flow of Income Model, more specifically the Marginal Propensity to Consume concepts which show that when individuals in the middle class receive more money their Propensity to Consume increases, making them spend more money, causing an injection and increasing economic activity. If the government had given individuals in the upper class money their Propensity to Consume would likely remain the same, and they would save the money, causing a leakage and decreasing economic activity.
An influx of chinese investment, strengthening economic ties with china and growing population size was responsible for the upward trend from early 2009 to late 2011. The blip in this upward trend in early 2011 was caused by the small collapse of the Australian Housing bubble, which had very strong short-term effects, but little to no effects after mid 2011.
For the next 2 and half years the gradual decline in growth can be attributed to the slowing of the Mining Boom. From this point till the present day the fluctuations in the Australian Economy’s growth are due to the end of the Mining Boom, the drag (and diminishments in it) caused by less investment in the Mining sector, the shift to investment in the Services sector, higher household consumption and a number of natural disasters.
The lift in economic growth is expected to occur as the drag from falling mining investment diminishes, growth in household consumption improves and exports continue to grow strongly. Non-mining business investment is also forecast to strengthen.
Moving towards the end of this graph we see that growth fluctuates a lot, bouncing around with highs of 1% and a low of -0.2% in late 2016. Despite this fluctuation, the overall trend of the data remains steady, as expected due to Australia's unique economy.
However this strong start is sharply contrasted by a well defined downward trend from mid 2007 to the end of the Global Financial Crisis towards the end of 2008.
Describe the performance of the economy as shown in the stimulus you choose ie: describe the information shown in the graph/table (200 words for each economy)
Explain the reasons for the economic growth performance of the economy (400 words for each economy)
Describe: provide characteristics and features of something
Explain: relate cause and effect; provide why/and or ‘how’
Tips:
Part a):
ALL the trends and the data that you include must be taken directly from your stimulus. You should NOT refer to data that is not part of your stimulus.
You should describe all of the main trends that are evident in your stimulus
i) Submit ONE piece of stimulus (graph or table) that shows the economic growth performance of China and ONE piece of stimulus (graph or table) that shows the economic growth performance of Australia.
Conditions:
Each piece of stimulus must have a clear title that identifies the performance area represented by the stimulus (eg ‘Figure 1: Economic growth rates of China 2000-2017).
Each piece of stimulus must be referenced (ie the source details of where you found it). These details should be recorded adjacent to the stimulus and in the bibliography. Consult your school diary on how to include references.
Stimulus must be presented in colour and be clearly legible.
The stimulus information must be included immediately prior to your text that is associated with it.
Tips:
Include stimulus that contains data showing both current performance and the trend in performance over time
The time period you consider should be no earlier than 2000
ii) Describe and explain the performance of the Australian and Chinese economies.
Describe the performance of the economy as shown in the stimulus you choose ie: describe the information shown in the graph/table (200 words for each economy)
Explain the reasons for the economic growth performance of the economy (400 words for each economy)
Describe: provide characteristics and features of something
Explain: relate cause and effect; provide why/and or ‘how’
Tips:
Part a):
ALL the trends and the data that you include must be taken directly from your stimulus. You should NOT refer to data that is not part of your stimulus.
You should describe all of the main trends that are evident in your stimulus
Part b):
You should explain at least two of the main trends that you described from your stimulus
You should use separate paragraphs for each of the trends that you choose to explain
Your explanation should follow the PEEL technique from class, in particular focusing on:
Providing cause and effect explanations. Note: the ‘effect’ is the level of economic growth in the economy (described in Part a); providing reasons for this performance (ie the ‘cause’) should be the focus of your explanation
Integrating economic terms, concepts and theory (eg market diagrams, CFYM)
Eg: China’s industrialisation led to high levels of demand for coal and iron ore which led to higher exports of coal and iron ore from Australia = injection into Australia, shown through the CFYM, leading to increased economic growth in Australia.
iii) Concluding paragraph to compare the performance of the Australian and Chinese economies.
Compare the economic growth performance of the two economies. Provide the key reasons for these similarities and/or differences.
(200 words)
Bibliography
Trading Economics – Australia GDP Growth Rate | 1959-2018
https://tradingeconomics.com/australia/gdp-growth
[Accessed 27 May 2018]
Trading Economics – China GDP Annual Growth Rate | 1989-2018
https://tradingeconomics.com/china/gdp-growth-annual
[Accessed 27 May 2018]
Reserve Bank of Australia – The Australian Economy in 2007 | Speeches
http://www.rba.gov.au/speeches/2007/sp-ag-070307.html
[Accessed 27 May 2018]
The Economist – The end of a mining boom leaves Australia’s economy surprisingly intact – On a chiko roll
https://www.economist.com/asia/2017/03/09/the-end-of-a-mining-boom-leaves-australias-economy-surprisingly-intact
[Accessed 27 May 2018]
The Guardian – 'They’ve lost the lot': how the Australian mining boom blew up in property owners' faces | Australia news
https://www.theguardian.com/australia-news/2017/may/12/theyve-lost-the-lot-how-the-australian-mining-boom-blew-up-in-property-owners-faces
[Accessed 27 May 2018]
Reserve Bank of Australia – Australia's Prosperous 2000s: Housing and the Mining Boom | Conference – 2011
https://www.rba.gov.au/publications/confs/2011/kearns-lowe.html
[Accessed 27 May 2018]
Reserve Bank of Australia. – The Global Financial Crisis
https://www.rba.gov.au/education/resources/explainers/the-global-financial-crisis.html
[Accessed 27 May 2018]
Budget 2017-18 – Budget 2017-18.
https://www.budget.gov.au/2017-18/content/bp1/download/bp1_bs2.pdf
[Accessed 27 May 2018]
YouTube – Dr Ken Henry Interview – "Go hard, go early and go to households"
[Accessed 27 May 2018]
7.30 – Ken Henry for web
http://www.abc.net.au/7.30/ken-henry-for-web/4013096
[Accessed 27 May 2018]
Eryk Bagshaw, James Massola. 2018. GDP: Australia grabs record for longest time without a recession . [ONLINE] Available at: https://www.smh.com.au/business/the-economy/gdp-australia-grabs-record-for-longest-time-without-a-recession-20170607-gwm0o2.html. [Accessed 27 May 2018].
3218.0 – Regional Population Growth, Australia, 2009-10. 2018. 3218.0 – Regional Population Growth, Australia, 2009-10. [ONLINE] Available at: http://www.abs.gov.au/ausstats/abs@.nsf/Products/3218.0~2009-10~Main+Features~Main+Features?OpenDocument. [Accessed 27 May 2018].