QUESTION

Collect economic data for three countries: Australia, China and Greece.  The data is to obtained from official sources as time series for the key macroeconomic variables. These are real GDP, real GDP per capita, annual real GDP growth, the unemployment rate, the interest rate,  and the inflation rate.  For Australia and Greece, also collect data series for government expenditure and taxes. The data are to be in annual format for the years starting from 1999-2000 up to and including 2010-2011 (or the most recent available).

1. Present the data above in tables for each variable. Present in charts the data for real GDP, real GDP per capita, annual real GDP growth, the unemployment rate, the interest rate and the inflation rate, with each variable in a separate chart.  Show one variable across the three countries in the same chart wherever possible.  Calculate the annual real interest rate and similarly present it in a chart including the three countries. Also in one chart for each of Australia and Greece, present its government expenditure, taxes and GDP. The charts must be correctly titled, labelled and sourced.                                               (8 marks)

1. Compare the variables in the charts for each country and comment about similarities and differences in the level and movement of the variables amongst the three countries.  Include a description of the budgetary positions for Australia and Greece over the period.

(5 marks)

1. Based on the data you have presented, discuss how the GFC has influenced the economy for each country over the period. Discuss why the effects on each country may differ.                                                                                                                                           (5 marks)

1. Make use of AE diagrams to analyse and contrast the macroeconomic behaviour of Greece and Australia. Discuss possible reasons for the differences.

(7 marks)

Up to 5 marks will be deducted for poor presentation including tables, charts and referencing.

SOLUTION

1. Introduction

The paper analyses the economic performance of the three countries namely Australia, Greece and China. The paper studies their growth performance over the years as well as analyses the impact of the government spending on the economic health. The paper collects the economic data of the three economies under study at different time intervals and then conducts the study.

The paper also analyses and studies the impact of the global economic crisis on the different economies and the responsiveness of the economy to emerge out of the economic crisis.

2. Presentation of Data

2.1 GDP at Current Prices

Figure 1: GDP at Current Prices US$1999-2000(Source : World Bank Data – accessed on 8/5/2012)

2.2 GDP Per Capita

Figure 2: GDP per capita US$1999-2000(Source: World Bank Data – accessed on 8/5/2012)

2.3 GDP Annual Growth Rate

Figure 3: Annual GDP Growth Rate 1999-2011 (Source: World Bank – accessed on 8/5/2012)

2.4 Unemployment of the Labour Force

Figure 4: Unemployment of the labour force %1999-2000(Source –World bank data – accessed on 8/5/2012)

2.5 Tax Revenue as the Percentage of GDP

Figure 4: Tax Revenue at % of GDP 1999-2010(Source: World Bank data – accessed on 8/5/2012)

2.5 Inflation Rates and Consumer Prices

Figure 5: Inflation Rate 1999-2010 (Source-World Bank Data- accessed on8/5/2012)

2.6 Real Interest Rate

Figure 6: Real Interest rate Percentage 1999-2000(Source –World Bank Data – accessed on 8/5/2012)

2.7 Government Spending

Figure 7: Government Spending 1999-2011 (Source: World Bank Data –accessed on 8/5/2012)

3. Analysis of the Economic Performance

The Australian economy has performed considerably well as evident from the data collected and had registered healthy GDP growth over the decade as well. The economy has grown at an average rate of 3% each year and as well as doubled its size in the last 20 years. In spite of the external shocks the Reserve Bank of Australia has claimed stable performance for the Australian economy. This growth can also be attributed to the independent actions of the Reserve bank on all monitory policy decisions of the Australian economy away from the political influences. The success of the Australian economic performance has also been reflected in the constant additions to the labour force to the Australian economy , the Australian economy has been experiencing a declining unemployment rate from 1999-2011 implying a certain degree of economic efficiency of the economy .To stimulate the economy from time to time the government has encouraged fiscal stimulus to the economy, the increased government stimulus has resulted in high fiscal deficits during the crisis which the government expects to be brought down only by end 2013..Infact many economists argue that the impact of the Global Financial crisis on  the Australian economy has been considerably less ,in spite the developed economies like UK and US growing at negative rates the Australian economy has registered a positive growth rate of 2-3% (approx.) over the years 2010(Auley,2010).

While on the other hand the China has been the world’s fastest growing economy over the past decade. From 2001-2007 the Chinese economy registered a growth rate of 4-7%, whereas the other world economies registered growth rates of just about 2 % in the same period. The continuous monitory stimulus given by the government lead to the further expansion of the Chinese economy. There is an existence of a certain inequity of GDP destruction in China when compared with the other economies, despite registering the highest growth rate the per capita distribution of income in unequal, a high population density can also be the reason for such a distribution (Giles, et al, 2012)

The Greek economic performance has not been as extemporary when compared with China or Australia; despite the conversion to Euro the economy has registered slow economic growth. Years of unrestricted government spending has resulted in the current budgetary position, the current size of the Greek debt over €300 billion which is more than the size of the Greek economy has been the result of the high fiscal spending.

4. Impact of the Global Financial Crisis on the Economy

As the global economy tries to recover from the subprime financial crisis that struck in September’2008 the Australian economy has also not been insulated from the impact of the crisis that emerged in the US. The Australian economy fare much better than some of the global economies in 2009. As China is a major trading partner of Australia, and proposed a considerable high growth for it also impacted the commodity demand in Australia and insulated it from the recession.

The RBA has played a major role ensuring protection for the Australian economy and maintains its upward path; In fact the RBA was the first to increase the interest rates in an attempt to tighten liquidity to safeguard against the financial crisis. In October 2009 the RBA increased the interest rate by 25 base points to 3.25%. Now after successfully emerging from the financial strain from 2008-2011 and the growth expectations of the economy the Australian market and industry are waiting for a rate cut by the RBA in 2012.

(www.qfinance.com- accessed on 24/4/2012)

After experiencing the Robust growth till 2007 ,China was also impacted by the global financial crisis , however the impact cannot be called as severe as the impact on the other developed countries like UK and US and some other Euro zone economies. The contracting monitory policy adopted by the Chinese government in 2007 to and the corresponding financial crisis in 2008 intensified the crisis position in China. The crisis has resulted in a sharp drop in the growth rate from its peak of 10% approx. in 2007-2008 to 6% in 2010-2011. The poor performance of the Chinese economy can also be attributed to the reduction of china’s exports as a result of the fall in the global demand. But, China continues to be the fastest growing economy in the world despite the financial crisis and is trying to emerge from the impact of the crisis by following inward looking policies.

The Greek economy has worsened, as a result of the economic crisis, with the crisis intensifying further in the current year 2012. The Greek economy has faced continuous contraction from 2008 onwards with the strike of the Subprime crisis. The crisis has intensified as a result of excessive government spending the current Greek Debt is €300 billion ($413.6 billion) with a rising fiscal deficit of 12.7%. This has resulted in the low credit rating for the Greek economy and has been downgraded to the lowest in the Eurozone. This has left the entire Eurozone in jeopardy as well as loss of policy options to the Greek government. The impact of the Greek debt crisis has also impacted global markets which have registered consequent falls with declaration of the crisis in 2011(cnn.com – accessed on 8/5/2011).

Thus the financial crisis have impacted the economies globally but the Emerging market economies are trying to emerge out the crisis by adopting appropriate policy measures , however the situation seems worsening for the Greek economy which appears to slipping into a deeper crisis.

5. Australia vs. Greece

The independent nature and the policy of the Australian RBA have ensured a positive performance of the Australian economic policy. The independent monitory policy adoption has resulted in the somewhat insulation of the Australian economy. The Australian government has maintained a steady level of consumption as evident from the World Bank data which has ensured efficient economic performance of the Australian economy.In October 2009 the RBA increased the interest rate by 25 base points to 3.25%. Now after successfully emerging from the financial strain from 2008-2011 and the growth expectations of the economy the Australian market and industry are waiting for a rate cut by the RBA in 2012.

(qfinance.com – accessed on 8/5/2012)

The main difference between the Australian and the Greek spending has been the cautionary and well balanced policy followed by the Australian government. The Greek government has deepened its debt crisis with the continuous expansionary fiscal and monitory policy adoption. The Greek bank and credit ratings have fallen as a result which have further worsened the situation. This has sent a trickle down impact to neighbouring countries of Portugal and Spain and likely to spread to other European countries as well. Therefore the Greek economy is facing a double impact of the debt as well as Global financial crisis which emerged in 2008. The Australian economy also has high fiscal deficits ,The global financial crisis did have an impact on the Australian economy with , the stock market losses that affected consumer income in 2009-2010.This was accompanied with a highest ever fiscal deficit for the Australian government at 4.7% in 2009-2010 accompanied with another large fiscal deficit of 3.7% in 2010-2011. Therefore the crisis curtailed the growth of the Australian economy and forced the RBA to tighten the monetary policy to ensure tight liquidity and insulation from the global impact of the financial crisis. This monitory policy tightening was not undertaken by the Greek economy worsening the situation ((www.Qfinance.com and www. budget.gov.au – accessed on 8/5/2012).

6. Conclusion

The impact of the global financial crisis has been felt across global economies. But the world economies are trying g to emerge out of the crisis by following inward looking policies, but the governments curbing expenditures and tightening monitory policies. The situation of the Chinese and the Australian economy however looks to in a reasonable position, But Greece has entered a deep crisis which can be dealt only by efficient policy adoption by the government.

References

• “World Databank.” World Databank. N.p., n.d. Web. 8 May 2012. <http://databank.worldbank.org/ddp/h
• Auley, Ian. “The Australian Economy Ian.” TheAustralianCollaboration 1.1 (2012): 1-19. Print.
• Giles, John , Albert Park, Fang Cai, and Yang Du. “Weathering a Storm Survey-Based Perspectives on Employment in China in the Aftermath of the Global Financial Crisis.” Policy Research Working Paper 5984.1 (2012): 1-33. Print.
• Q&A: Greece’s financial crisis explained – CNN.com.” CNN.com International – Breaking, World, Business, Sports, Entertainment and Video News. N.p., n.d. Web. 8 May 2012. <http://edition.cnn.com/2010/BUSINES
• Category. “China’s Response to the Global Financial Crisis.” Chinese Culture. N.p., n.d. Web. 8 May 2012. <http://chineseculture.about.com/od/th
• “BBC – Newsbeat – Greek financial crisis explained.” BBC – Homepage. N.p., n.d. Web. 8 May 2012. <http://www.bbc.co.uk/newsbeat/101002
• Fraser, Ian, Anthony Harrington, January 11, and 11 2011. “Australia – Economy and Trade of Australia – QFINANCE.” Financial resources, articles, concepts and opinions from QFINANCE – QFINANCE. N.p., n.d. Web. 23 Apr. 2012. <http://www.qfinance.com/country-profiles/australia>.
• “Budget Strategy and Outlook 2011-12 – Budget Paper No. 1 – Statement 2: Economic Outlook.” 2011–12 Commonwealth Budget – Home. N.p., n.d. Web. 23 Apr. 2012. <http://www.budget.gov.au/2011-12/content/bp1/html/bp1_bst2-02.htm>

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