Comparison of GDP Between Australia and China

Question: Discuss about the Comparison of GDP Between Australia and China. Answer: The Gross Domestic Product presents the market value of the total goods and services produced by a country within a given time period. It helps to analyse the current economic position of an economy. It can be seen through analysis that Australia is one of the developed countries of the world with a good economic position and real GDP value (Hunt, 2010). On other hand, the GDP value does not consider the depreciation of the equipment and does not consider who produces it. Hence, it is the total value of the goods and services produced in a nation irrespective of the nationality of the individual producing it (Bacha, 2010). GDP is used as an economic tool to measure the current economic development in the nation, which is influenced by various factors of the global market due to the interconnection of the economies. The paper has been developed to compare the Gross Domestic Product of Australia with China to observe the difference between the economic positions of both developed nations. In order to conduct the analysis, the GDP of both Australia and China has been presented and the factors influencing the GDP of both the countries are discussed in details. Furthermore, a comparison has been presented with a discussion to understand the difference in the economic position of both the nations. It can be seen through the report of Australian Statistical Bureau that the Gross Domestic Product of the country has improved after the global financial crisis in the year 2008 (Ravallion and Ravallion, 2010). The financial downturn in the global market highly impacted the GDP of the country. The hike in the real GDP of Australia led to an increase in the GDP till around $1563.9 billion in the year 2013, which is a good figure for a country with a population of around 23.13 million in that particular year (Chan and Karp, 2016). The last two years of the Australian economys history has evident a fall in the GDP due to certain political instability and distress in the global market that has led to a fall in the GDP till around $1339.54 billion (Abs.gov.au, 2016). A figure has been presented below for better understanding: Figure: Australia GDP Source: (Abs.gov.au, 2016) Currently, a GDP growth rate of around 3.1 percent can be evident in Australia that presents a rise in the real GDP between 2015 and 2016 second quarter. Along with that, the Per Capital GDP of the Australian people has been found to be US$64,500, which indicates a good financial growth in the economy (Abs.gov.au, 2016). The current statistics of GDP indicates that Australia accounts to be one of the developed countries of the world with high level of financial returns. But, the falling GDP in the last two years have become a concern for the Australian Government that enforced the authority to make necessary changes in its Macro and Micro economic policies. Currently, the position of Australia in the global economy has fallen from 12th position to 13th position in regards to its GDP (Chan and Karp, 2016). Hence, the fall in the GDP has become a great concern for the government of Australia. The current economic growth trend in China economy has identified as significantly uptrend due to structural reforms and stimulus programmes offered by the government (Haddad and Shepherd, 2011). The existing growth structure in China is looking formidably solid as stimulus packages have eased economic slowdown fuelling supports in the infrastructure and property sector. After the financial crisis of 2009, the economy of China has been boosted by heavy stimulus package including surged fiscal spending on monetary policy and industrial infrastructure (Aizenman, Yothin Jinjarak. and Marion, 2013). As China is one of the key economic engines to the global economy, the economic slowdown has prompted the Chinese Government to unleash stimulus package equivalent to US$586 billion. The stimulus driven economy of China has significantly contributed towards the Real Gross Domestic Product to surge at a considerable amount (Wildau and Mitchell, 2016). Figure: China Gross Domestic Product (2011-2015) Source: (Stats.gov.cn, 2016) According to the economic data released by the National Bureau of Statistics of China, China economy has shown significant improvement in Real GDP on year-on-year basis. As shown in the graph presented above, since 2011, the China economy has continuously registered higher GDP than the previous year. According to the data sources, the Real Gross Domestic Product in China has registered worth US$ 10866.44 billion in 2015 which is the all time highest GDP recorded by China. Moreover, the entire GDP value of the Chinese economy signifies 17.53% of the global economy showing the worth of the economy to the world. As shown in the figure mentioned above, the China GDP has increased by US$1000 billion each year since 2012 showing the performance of the massive economy. In 2012, the GDP was US$8461.62 billion whereas in 2014 the GDP was registered worth US$10351.11 billion proving the improved business environment of the economy (Stats.gov.cn, 2016). Figure: China GDP Growth Rate (2011-2016) Source: (Stats.gov.cn, 2016) As per the released data issued by the National Bureau of Statistics of China, in the first quarter of 2016, Chinas economy has expanded by 6.7 percent at an annual rate. Under the current economic circumstances of China, the GDP growth rate of China is slightly down in compared to the last year but the GDP growth rate is in line with the expectations of the Chinese government and Central Bank. Conversely, after the global crisis of 2009, the annual GDP growth rate registered in the first quarter of 2016 is the lowest (Magnier, 2016). Meanwhile, driven by industrial output, new loans on fixed asset investment and retail sales have contributed to maintain the GDP annual growth rate in line with the estimation. Also, the International Monetary Fund (IMF) has revised the GDP growth target of China from 6.3% to 6.5% showing the stable GDP growth of one of the biggest global economies (Stats.gov.cn, 2016). Under the discussion standpoint of the factors affecting GDP of developed countries such as China and Australia, the review paper has identified the three macro economic factors such as manufacturing, services and industrial output to determine the Gross Domestic Product of the economies. Economic growth for any developed or emerging economy has been identified through the surge in real GDP. Understandably, if the volume of manufacturing goods and services has been increased in a significant order, it can be stated that the economy is on the verge of growth momentum. In case of Australias GDP growth, there are two major factors affecting the GDP of the economy such as demand side factors and supply side factors. As far as demand supply factors are concerned, Aggregate Demand (AD) can be identified as one biggest demand side factors contributing to the higher GDP of Australian economy. Invariably, surge in consumer spending, investment, exports, government spending can lead to elevate d AD that is supportive for GDP growth perspective. Figure: Rise in Aggregated Demand leads to Higher Real GDP Source: (Vassalou, 2015) Meanwhile, as shown in the above presented graph, the aggregated demand curve has been shifted towards right from AD to AD2 showing the improvement. At the same point, due to the increase in AD, the Real GDP point has surged as the Y1 has shifted towards Y2. Cleary, as the consumer spending increased, the AD has surged to a significant point leading to Real GDP growth. As far as long-run GDP growth, supply side factors such as productive capacity of the economy has significantly affecting the real GDP (Vassalou, 2015). Moreover, industrial output, manufacturing index and services PMI have significantly contributed for larger GDP perspective. Figure: Australian Manufacturing PMI Source: (Abs.gov.au, 2016) Under the current economic scenario, the manufacturing PMI of Australian economy has been identified as 46.9 in 2016 whereas the services PMI is 45 index points showing the poor performance of the economy in compared to the previous data (Abs.gov.au, 2016). Figure: Australia Performance Services Index Source: (Abs.gov.au, 2016) Also, the industrial production of the economy has registered 4.78 percent in the first quarter of 2016. The industrial production MOM data shows 3.24 percent whereas manufacturing production has been registered at 3.06%. Invariably, all the data has indicated towards a positive economic outlook of the Australian economy. As far as government spending to GDP is concerned, the clearly, 36.2% has been contributed by the government in 2014-15 financial year. On this note, the government spending was AU$75,957 million in June, 2016 whereas the revenue was AU$40,456 million (Abs.gov.au, 2016). Moreover, in case of short-run economic growth, there are other factors to be considered such as commodity prices, political instability, and strength of labour market, infrastructure, and human capital of the economy. Understandably, if the commodity prices have been kept under check, the inflation rate can be controlled in an efficient order contributing towards better real GDP. Also, the human capital and labour market structure can lead to higher economic growth at the same time. Such factors have been quite positive for Australian economy fuelling further pace to real GDP advancement in the next decade or so if the global uncertainties will be kept under control (Hutchens, 2016). In terms of China economys real GDP growth is concerned, there are mainly three identified factors affecting the growth model such as bad loans write-off, social reforms and dropdown in government spending on real estate projects (Frangos, 2016). Under the current circumstances, the bad loan abandon amount of the Chinese banks have surged to the highest level since the financial crisis of 2008-09 to 28.5 billion Yuan showing the pathetic position of the banking system (Stats.gov.cn, 2016). The pressures on assets and debt have forced the China economy to bow down. Moreover, the government spending cut on the biggest real estate projects has forced the biggest MNEs of the economy to find new investors. As the projects have been delayed, the mortgage and property industry have not responded towards real GDP as much as it should be contributing. Therefore, the real GDP is hurting by the spending cuts (Zhao and Xu, 2013). Also, some of the social reforms have enforced increased rates on urbanisation affecting to the real GDP. Figure: China Manufacturing PMI Index Source: (Stats.gov.cn, 2016) In the meantime, the China manufacturing PMI Index has presented a significant improvement in spite of the adverse factors affecting to economic growth (Fogel, 2016). In the last quarter, the PMI registered at 50.0 index point while the expectancy was 50.1. Due to the wipe of output orders and new contracts, the manufacturing PMI has down a bit in compared to the previous of 50.6 (Stats.gov.cn, 2016). Figure: China Services PMI Source: (Stats.gov.cn, 2016) In terms of data regarding services PMI, the China Services PMI has revised to 52.1 index points in the last quarter as the index rose from 51.7 index point (Stats.gov.cn, 2016). Clearly, the outperformance of the services sector has been quite an achievement for the economy showing the worth of the economy. Figure: China Industrial Production Source: (Stats.gov.cn, 2016) Significantly, the industrial production of China has been one of the key affecting factors to real GDP. The data released in August of 2016 has shown that the industrial production of the worlds second largest economy has risen to 6.3% (Stats.gov.cn, 2016). The previous recorded data was 6.0%. Meanwhile, the industrial production data is largely supported by manufacturing, gas, electricity production and mining production (Chang, 2014). The discussion of the affecting factors to GDP of the both identified economies has shown the current status of the economies. In the next sections, a brief comparison and discussion have been drawn on the overall economic situation and factors leading to real GDP expansion. Comparing the GDP of both Australia and China, it can be seen that China is at a better position as compared to Australia. It can be seen that GDP of China is around $10,866.44, whereas the GDP of Australia is $1339.54 in the year 2015. On the other hand, China is at the second rank in the global GDP table and Australia is at 13th rank (Stats.gov.cn, 2016). Hence, it can be seen that Chinese economy is at better position than the Australian economy. Furthermore, it can be seen that the GDP growth rate of Australia was at 3.25 percent and the GDP growth rate of China was at 6.75 percent in year 2015. Hence, it can be seen that the Chinese economy beats the Australian economy in terms of GDP growth rate (Mariano and Murasawa, 2010). Now, considering the per capita income of the people, it can be seen that the per capita income of Chinese people is around $6416.18 that have continuously increased in the last five years. In the case of Australian economy, the per capita income of the people is around $64,500. Hence, it can be seen that the figures present a better living standards for the Australian people as compared to the Chinese people (Modis, 2013). In other words, the Australian people lead a better life with higher financial earnings as compared to the Chinese people. Considering the factors that impacts GDP of a nation, it can be seen that there are two major factors namely demand and supply in the market that influence the GDP of the country (Li and Whalley, 2012). It can be seen that rising per capita income of the people has gradually increased the demand in the Australian market. The same impact can be seen on the Chinese economy as well (McLean, 2012). Hence, the growth in the aggregate demand in both the economies has contributed to the rising GDP of the nations. On the other hand, supply has also increased that have controlled the price of products in both the markets (Stats.gov.cn, 2016). Hence, a controlled inflation rate can be seen in both of these economies. Both of the countries have managed to keep the inflation rate in control at 1 percent in the year 2015. It can be seen that after the global financial crisis, the inflation rate of both the countries have gone high and the government of China and Australia implemented necessary ma cro-economic reforms to control the price index in their respective markets. Considering the Australian Manufacturing PMI, the PMI rates have increased in the last five years from around 50 to above 55 index point. On the other hand, the Chinese Manufacturing PMI has fluctuated between 45 and 50 index point. Furthermore, the Chinese Service PMI have fluctuated more as compared to Australian Service PMI (Ho and Tsui, 2014). Hence, it can be seen that GDP of China is more depended on global market as compared to the Australian economy. It can be seen from the above analysis that the Australian government has made several changes in its macro-economic policies to control the demand and supply in the market. The fiscal and monetary policy of Australian government has been quite effective in overcoming the financial stress that has been faced by the country during the global economic crisis (Stats.gov.cn, 2016). A rise can be seen in the GDP of Australia till 2013 which have again decrease in 2014 and 2015. On the other hand, the GDP of China has increased in the last five years, but the GDP growth rate have decreased in the recent years (Modis, 2013). Hence, a fall in the momentum of GDP growth rates has been noticed in the case of China. The primary reason for continuous development of Chinas GDP is the improving technology and innovative ideas of business. The high level connection of Chinese Economy with the global market has led to increase in the national export that has helped the government to improve the GDP in the last five years (Yang et al., 2013). Furthermore, degrading condition of the Australian industries such as mining, coal and gas industry have highly impacted the GDP of the nation in the last two years. It can be seen that the falling demand for gas and over-supply have resulted in the fall in GDP contribution in the oil and gas industry of industry (Prasad, 2009). Along with that, the falling price of coal in the global market has severely impacted the supply of Australian coal in the international market. Hence, these factors have been identified as primary reasons for the fall of GDP in the year 2014 and 2015. It can be seen from the above analysis that the Australian government needs to make further changes in its macro-economic policies to improve the current status of the coal, oil and gas industries. Along with that, it needs to promote its mining industry to increase output that will help in increasing the GDP contribution of respective industries. Furthermore, the occurrence of draught must be dealt by the government to manage the production of the agricultural industry to maintain the economic balance of the nation. Through the identification of the current economic scenario of the two developed economies, it can be stated that the Australian economy has gone through a vital stage in compared to the Chinese Economy. Understandably, China, being the second largest economy has got versatile opportunities for further GDP development (Bhalla, 2012). In the discussion, the Australian economy has been compared to the second largest economies of the world to identify how the two economies are performing in context to the affecting factors leading to GDP growth. Understandably, the resources and capital structure available to the China economy is much more than to that of Australian economy. Hence, the China economy is clearly outperforming the Australian economy almost each of the sections. Moreover, as far as Gross Domestic Product is concerned, the affecting factors have put minor impact on the China economy in compared to Australian economy. Currently, the Australian GDP has been seemed to be topped out in 2013 with a GDP worth US$1563.9 billion. On the other side, the China economy has kept the rhythm going since the last five years registering an improved Gross Domestic Product YOY basis. Meanwhile, in 2015, the China economy has registered GDP worth US$10866.44 billion showing the capacity of the economy to the rest of the wo rld. The Australian government needs to identify precise fiscal policy and monetary policy to enforce interest rate cut and tax rate cut to enforce liquidity in the market. Thus, the government spending and consumer spending will be improved contributing to the GDP growth of the country. References Abs.gov.au. (2016).Australian Bureau of Statistics, Australian Government. [online] Available at: https://www.abs.gov.au/ [Accessed Sep. 2016]. 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