Today, Australia’s economy has truly reflected this “condition”. Prior to the 1970s much of Australia’s trade was held with the European and North American markets. During this period, Australia was also considered as a relatively closed and protectionist economy. However, as key economic reforms were gradually being introduced by the Australian government, the Australian economy also started to turn their attention away from trade with the Western markets to trade within the Asia Pacific region.
This shift has turned Australia into one of the fastest growing advanced economies in the world. Australia is the 13th largest economy in the world according to nominal GDP (current prices) and the 17th largest according to GDP (PPP). In 2010, Australia’s GDP (PPP) was US$882.344 billion – a 3.94 percent increase from 2009. Australia’s nominal GDP (current prices, US dollars) growth during the same period was even more amazing – GDP (current prices, US dollars) grew from US$994.25 billion in 2009 to US$1.219 trillion, a 22.68 percent increase.
In the past two decades, Australia has enjoyed a period of uninterrupted economic growth – an average of 3.3 percent in real GDP growth annually. Australia possesses a well-diversified economy boosted by the strength of its services and resources industries.
This been obtained through a stable and modern institutional and regulatory structure. Australia was ranked third in the 2011 Economic Freedom Index behind Hong Kong and Singapore and continues to provide an ideal environment for business and environment.
Domestically, Australia’s economy can also be characterised by an east/west divide. The eastern part of Australia is home to the majority of Australia’s service and financial industries. It also contains Australia’s capital city Canberra, the heart of Australia’s political and economic policies. Western Australia, on the other hand, controls the majority of Australia’s natural resources, including iron ore, gold, oil and natural gas.
The contrast between these two regions has often led to disagreements within the Australian government over developmental plans. Although Australia’s GDP is still dominated by its service and financial industries, these industries have been struggling in recent years. On the other hand, Australia’s resources and commodities industries are currently experiencing a boom period. According to Canberra-based Access Economics, growth in regions endowed with minerals and oil and gas will far outstrip growth in the country’s more populous states next year. However, concerns have also been raised on whether the resource and commodities industries are too reliant on exports to China.
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In 2009, China became Australia's largest export market, surpassing Japan.
Resources continue to underpin Australia’s exports to China. Australia exported 266.2 million tonnes of iron ore to China in 2009, an increase of 45.2 per cent over the same period.
China is also Australia’s largest source of imports. Major imports from China include clothing, communications equipment, computers, prams, toys, games and sporting goods, furniture and televisions.
The vast scale of trade with China has seen massive investments by Chinese companies in Australia. From 2007 to 2010, Chinese investment in Australia amounted to nearly US$60 billion. Australia’s mineral exports also grew by 55 percent to US$139 billion in 2010 and are projected to reach US$180 billion in 2011, thanks to China’s strong economic performance. Chinese companies have also started to lease land from the Australian government to mine resources on their own.
Along with their relationship with China, Australia holds multiple free trade agreements with numerous other countries such as the US, Singapore, Chile and Thailand. Australia is also a member of numerous organisations such as APEC, the G20, WTO and OECD.
However, Australia’s most notable trade partner is New Zealand. The Australia New Zealand Closer Economic Relations Trade Agreement (ANZCERTA) was enforced in 1983, building upon the 1965 New Zealand Australia Free Trade Agreement (NAFTA, not to be mistaken for the North American Free Trade Agreement). The ANZCERTA has greatly integrated both economies and there are now plans to create a single Australasian economic market by 2015.
Today, Australia is ranked 19th in the world for both imports and exports.
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In 2010, Australia’s GDP composition was as follows – agriculture (3.8 percent), industry (24.9 percent), services (71.3 percent).
As with most advanced economies, Australia has a dynamic service sector. This includes industries such as banking, insurance and finance; the media and entertainment industries; consulting, tourism and retail; services provided by government, such as education, health and welfare; and other personal and business services.
Among these industries, banking, finance and insurance are the best performers; providing the highest gross-value as well as being among the fastest growing industries in Australia. The Australian share market is the second largest in the Asia–Pacific region behind Japan, based on free-float market capitalisation. The Australian Securities Exchange is also the 11th largest stock exchange in the world going by market capitalisation.
While the service industry remains the backbone of Australia’s economy, Australia’s mining industry has been the catalyst for economic growth in the past decade. Large quantities of minerals and resources can be found in Australia. Australia has the world’s largest resources of recoverable brown coal, lead, rutile, zircon, nickel, tantalum, uranium and zinc, and ranks second in the world for bauxite, copper, gold, ilmenite and silver. Iron ore is another extremely valuable asset, with high demand from China.
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Spurred by robust business and consumer confidence, Australia’s economy is expected to grow even quicker in the next five years. 2011 to 2015 should see Australia’s GDP (PPP) grow by 4.81 to 5.09 percent annually. By the end of 2015, Australia’s GDP (PPP) is expected to be US$1.122 trillion.
Likewise, Australia’s GDP (PPP) per capita is expected to experience healthy growth. In 2010, Australia’s 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, Australia’s 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 Australia’s GDP (PPP) per capita, resulting in a GDP (PPP) per capita of US$47,445.58 by the end of 2015.
However, despite Australia’s strong economic growth, Australia’s unemployment rate has been relatively high. In 2010, Australia’s unemployment rate was 5.192 percent – 0.22 percent more than the world’s average of 4.97 percent.
In an interview given before the May 2011 budget, Australia’s 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 end of 2012. After which, the unemployment rate from 2013 to 2015 should remain constant at 4.8 percent.
In recent times, inflation rates have been another cause for concern. According to the Australian Bureau of Statistics, the increasing costs of food and fuel caused Australia’s inflation rate to be higher than expected in the first quarter of 2011. Yet, Australia’s inflation rate (average consumer price change) was still able to recover better from the financial crisis compared to most other advanced economies. In 2010, Australia’s inflation rate (average consumer price change was 2.962 percent, returning from 1.82 percent in 2009. Significantly, this was only marginally lower than the average inflation rate (average consumer price change) before the financial crisis from 1999 to 2008 (2.987 percent).
By the end of 2011, Australia’s inflation rate (average consumer price change) is expected to rise to 3.038 percent. However from 2013 onwards, Australia’s inflation rate (average consumer price change) is expected to fall below 3 percent once again and be between 2.65 percent and 2.498 percent from 2013 to 2015.