Australia has one of the world's largest economies and an annual gross domestic product of $1.525 trillion US (2014). Australia had the 12th largest GDP by nominal GDP and the 15th largest GDP per capita based on purchasing power parity (PPP). It is also the 19th largest global importer and exporter.
The Australian service sector makes up 68 percent of its annual GDP. While mining and agriculture come in as a distant second, around 12 percent of GDP all together, these products form the backbone of much of Australia's economic growth and they are exported primarily to the East Asian market.
The Australian Securities Exchange in Sydney is the ninth largest, in terms of market capitalization, stock exchange in the world. The national currency of Australian is the Australian dollar. Australia is also a member of the APEC, G20, OECD and WTO. The country has free trade agreements with ASEAN, Canada, Chile, Korea, Malaysia, New Zealand, Japan, Singapore, Thailand, and the United States.
The first European settlement of Australia took place on January 26, 1788 in what is today Sydney. The first settlement was set up as a penal colony and consisted of 753 convicts and their children. The first census in 1788 indicated a white population of 1030. Due to an oversight that led to failing to give the settlers currency, rum served as the de facto currency of the colony for the first 25 years of its existence. The settlement barely survived the first years of its existence thanks to lack of support from England, which was consumed with the war against Napoleonic forces on mainland Europe.
Agriculture was the primary concern of the early settlement, but there were also a number of skilled tradesmen among the population. From 1821-1850, the economy began a modest shift toward wool and mining, and saw a number of new immigrants, swelling the population to some 430,000 by 1851. When gold was discovered that year, a gold rush began, quickly swelling the Australian population even further to 1.7 million by 1871.
Manufacturing and construction sectors truly grew into their own during the gold boom. These years also saw the establishment of the nation's first stock exchange in Melbourne in 1861. However, fertile lands became scarcer, and foreign agricultural investments began to decline. Investments shifted to production, instead, causing Australian workers to experience some of the highest wages in the world from 1880-90. However, following years of weaker than expected returns, foreign investments dried up in 1890, leading to a lengthy depression and a series of social and economic upheavals that lasted until the start of World War I.
In 1910, the Australian government introduced the first national currency, the Australian pound. Wool production remained the primary financial base of the economy, but a number of additional agricultural products began to join exports and contribute more heavily to the economy.
Unfortunately, global economic troubles heavily affected Australia's largely export based economy, creating one of the worst recessions in the nation's history; it peaked in 1931 and 1932. Australia was fortunate, however, that the recession was not as devastating to the Australian economy as it was too many other nations around the world. A burgeoning manufacturing sector contributed to this moderated result, as well as tariffs timely implemented by the government.
World War II would have a profound effect on the development of Australia's economy. Increased demand for products to support the war effort led to a period of great economic expansion coupled with a shift to a more industrialized economy.
Following the war, Australia adopted a policy of reconstruction based on government control over key parts of the economy in order to continue economic growth, restrain inflation, and reduce unemployment. The government nationalized a number of Australian companies, such as QANTAS, while simultaneously creating a number of government run enterprises designed to expand the government sector. While this policy led to high economic growth, it also created strong political opposition. Thus, in 1949 election, the government was largely replaced with more conservative candidates who ran on a platform of instituting a "mixed economy."
The conservatives instituted the Reserve Bank of Australia. They also began expanding the export trade outside of the British Empire with the signing of trade agreements with West Germany, Japan, and the USSR in the 1950s. Following the war, and running until 1972, Australia experienced a rapidly expanding economy with low unemployment and high population growth. In 1966, the nation abandoned the Australian Pound and moved to the Australian dollar as its primary form of currency.
In 1972, the Australian economy began to experience stagflation: inflation was high, while economic growth slowed and unemployment climbed. Poor government management of the situation only enhanced the problem. Real improvements began in the 1980s, following a number of moves to reduce government controls and liberalize trade. Unfortunately, these gains were quickly negated following Black Monday in 1987 and the subsequent global recession. Fortunately, Australia was more insulated from the effects than some other nations and quickly emerged with a beneficial reduction in inflation.
The economy saw good growth and expansion from the late 1990s until the global recession in 2008. Fortunately, a stimulus package introduced by the government prevented a domestic recession, though some areas of the country did experience a contraction.
Current Economic Situation
Australia's per-capita GDP is higher than that of the UK, Germany, or France, in terms of purchasing power parity (PPP). The country ranked second in the 2011 United Nations Human Development Index and sixth in The Economist's 2005 worldwide quality-of-life index. With a sovereign credit rating of "AAA," Australia's credit rating is actually higher than that of the United States.
In 2011, Credit Suisse reported that Australia had the highest median wealth in the world, with an average $222,000 US. That number was nearly four times higher than the average for American adults and made Australia second only to Switzerland in average wealth.
Australia's economy relies heavily on the export of commodities rather than manufacturing. Major Australian exports include wheat and wool, minerals such as iron ore and gold, and energy in the forms of liquefied natural gas and coal. Australia's largest export markets include Japan, China, South Korea, India, and the United States.
However, the service sector of the economy constitutes 69 percent of Australia's GDP. Property and business services have been the largest growth industries in the service sector. Unfortunately, this growth appears to have been at the expense of the manufacturing sector, which has contributed proportionately less to the economy since the late 1990s.
Much of Australia's economic growth flows from areas of the country with mining and resource-based industry. While these areas avoided recession, other parts of the country did not fare as well, leading to the description of a two-speed economy.
Transitioning from an economy dependent on natural resources, Australia's recent budget, and fiscal policies along with weak wage growth and a depreciated Australian dollar should aid in economic expansion. However, declining mining investments will counter growth to some extent. GDP is expected to expand by 2.4 percent in 2015 and by 2.9 percent in 2016.