Effects Of China 's Fiscal For The Australian Economy

The Chinese and Australia economies have many similarities and differences, including the size of the economies, growth rates, unemployment, inequality, standard of living, environmental issues and the roles the different governments have in influencing and modifying these factors of the economy.

This report will show an overview of the current state of the Australian economy and its management by the Federal government through examining economic indicators such as economic growth (GDP), unemployment, inflation and trade.

Australia and China adopt very different economic systems in order to cater the best for their society. However, Australia's economic system is more successful than China's and, due to the writer's right-wing value system, will be measured in terms of environmental efficiency, labour and entrepreneurial resource efficiency and the standard of living.

So naturally, China's resource-hungry manufacturing industry is a perfect match for Australia's Resource rich, yet 'manufacturing ability' poor economy. Australia's day to day living costs are astronomical when compared to China's. Consumer prices in Australia are on average 115.87% higher than those in China, although countering that fact, Australia's purchasing power parity is 141.66% higher than China's. (Cost of living comparison between China and Australia - Numbero) Hence, levels of income for respective jobs reflects the economic situation in each nation (i.e Australia's salaries must be higher to counteract our high cost of living, whereas China's wages can be set lower, due to the lower cost of living.) At the time of writing, 1 Australian Dollar buys approximately 5.3 to 5.8 Renminbi Yuan (The Economist.) Chinese culture also places a greater emphasis on the system of bartering for goods and services, which is a system of trade Australia fails to utilise. At its current rate, China's economy will continue to experience growth, and will likely continue to be one of Australia's biggest import and export

Australia has also experienced a rising terms of trade to 130.0 in late 2011 due to the commodities boom as a result of the industrialization of the BRICs, whereby Australia has experienced high export and national income, but has resulted in less competitiveness in other sectors due to the high AUD, causing the ‘Dutch disease’ whereby non-commodity sectors lose competitiveness. Similarly is can be seen in its narrow export base whereby in 2012-13 one third of export revenue came from coal and iron ore ($96 billion from 300 billion), furthermore 57% of Australian export revenue is made up of mineral and energy exports, whereby Australian growth has been largely fuelled by commodity exports and mining boom.

The Australian PMI has been mostly below 50 with an average of 47.98 in past 12 months and an average of 47.94 this year, which suggests a likely contraction in manufacturing. Fluctuation is expected due to its volatile nature but a large percentage change is likely to drive the economy. A 14.03% growth in July is expected to lead to an increase in the coming month but contraction may continue in 2015-2016. From these PMI figures, Australia’s economy might not be performing at its best. The industry might suffer

The Australian exception could be related to the relative proximity of the fast growing Asian developing countries such as China which can bolster Australian’s economic activities. It could also be related to the relative good health of Australia’s financial market before the financial crisis that made it more resilient to it. Or it could also be that the Australian government’s actions were efficient at counteracting the financial

The Australian economy is playing a crucial role in terms of global economy. Based on the government’s analysis, Australia has been placed at the top 20 for the world’s largest economy. This caused a lot of economists to pay attention to Australia’s performance. Economists use macroeconomic objectives to analyse the national economy. This essay will focus on two macroeconomic objectives, how they are measured, and how they relate to each other. Furthermore, it will also discuss Australia’s performance over the past three years (2013-2015) and predictions concerning Australia’s performance in terms of these objectives in 2016.

All three countries took a hit to GDP growth in the 1970’s due to the oil price shocks and more recently the global financial crisis has stunted growth in the past four to five years. Both Australia and China were able to avoid falling into a recession but the United States was not so fortunate (see Figure 2).

It is said that we are living in turbulent times. The Australia’s once-in-a-century commodity boom has reversed, leading many miners to cut back on investments and consolidate; which is expected to generate great social and economic hardship throughout these years. While more hope is casted into the construction sector, a cooling change blows in the housing market. Unemployment is tipped to rise and when it reaches a record high; consumption will continue to grow at a below-average pace, so business sentiment will remain fragile. Rather than fuelling the economy, the fiscal policy keeps straining it whilst the monetary policy will struggle to have an impact – indicating that the Australian economy is slipping downwards.

The Australian economy has continued to grow at a moderate pace and activity is rebalancing away from the resources sector towards non-resource sectors. Even though the available data suggest that GDP continued to grow at a below-trend pace over 2016, employment growth was above average and the unemployment rate fell by around ½ percentage point. In part, employment growth appears to have reflected the relatively strong growth of output in the more labour-intensive sectors of the economy, such as household services. Growth of goods-related production has picked up more recently, but remains modest overall.

Over the past decade, the Australian dollar has devaluated strongly against the US dollar. Especially in the second half year of 2014, the Australian currency losing around 14 per cent of its value against the US dollar and almost as much against the Chinese RMB (Dixon, J 2015). After the devaluation of Australian dollar, several results would both have positive and negative influences on Australian multinational corporations (Faff, R 2000). It would cause: reduce imports and increase exports, domestic employment opportunities, reduce unemployment, domestic consumer goods prices, stock prices and house prices fell, not conducive to go to study abroad and rising gold prices. More specifically, the impact would explain in the following:

a) China is one of the fastest growing economies in the world and is one of Australia’s major trading partners. Discuss the implications for the Australian economy of a weaker than expected Chinese economy in 2016. Illustrate your arguments with the AS-AD model. (30 marks)

In March 2015, Greg Jericho published an article called Weak, weak growth and six things about the state of Australia’s economy that outlined how in the past 6 out of 10 quarters the Australian

The figure obviously had not return to pre-crisis level. Moreover, recent commodity prices had fallen significantly which will affect Australia’s short and long term economy.