Eco essay help on: GDP of an economy

1. 1.      Introduction

This report has been designed in order to describe, compare as well as contrast the various economic indicators for the two big countries i.e. Australia & Brazil. This report elaborates the various indicators for the past 5 years & uses the following data which would help in order to analyze the same. The information would help in order to interpret as well as analyze the two main economies. The information would be able to compare as well as analyze the various aspects of the two economies i.e. Brazil & Australia. This would help in order to judge the various statistical data along with the various information to have an in depth knowledge regarding the same. The contrast as well as the comparison would help in order to see whether there are any scarce resources with any of the economies.  This would also help in order to see the quality of life as well as the increase the productivity of the economy as a whole.Australia refers to an economy which has been relying heavily upon the agricultural sector along with huge land mass as well as abundant natural resources. Major shift in the demand of the various resources has led to a change in the China’s economy which in turn has led to the expansion of the Australian economy. During this period the country has suffered from widespread drought which has had some negative impact on the agricultural sector. The general increase in economic activity has also underpinned domestic demand for retail goods and services which have in turn further boosted the economy. Despite the large export of natural resources Australia remains a net importer, raw materials are exported and returned as value added finished goods, trending the trade deficit incessantly upward.

The Australian Dollar (AUD) is currently trading at high levels and this is exacerbating the trade deficit as imports become less expensive thereby increasing demand and export returns decrease. Australia is experiencing inflationary pressure and the Central Bank the Reserve Bank of Australia (RBA) which is charged with keeping inflation in check is currently exercising its open market policy to reduce the money supply by increasing interest rates in order to put a brake on inflation.

The Brazilian Economy has been ranked as the seventh largest economy in the world. It has approximately eighth highest GDP along with high Purchasing Power Parity. Brazil has been regarded as one of the free markets & an inward economy. The Brazilian economy has been ranked as one of the largest economies in Latin America. Its economy has also been regarded as the second largest amongst the western hemisphere. Brazilian has also been referred to as the fastest growing economy all over the world. The average annual growth of GDP for this economy has been estimated to be approximately 5 percent. In the year 2009, the GDP has been recorded as $3.143 trillion approximately. It has also being predicted that, this economy would grow & reach a position amongst one of the largest economies all over the globe in the next 10 years to come.Brazil has been regarded as a member of the most diverse economies i.e. Unasul, G20, WTO, Mercosul, G+8 & the Cairns Group. The major trade partners for Brazil are approximately hundred in numbers, with an estimated 60% of its major exports (manufactured as well as semi manufactured). In the year 2008, Brazil’s min trade partners were Latin America & EU, US, others with a share of 25.9%, 23.4%, 18.9%, 14% & 17.8% respectively.

Based on the World Economic Forum, Brazil as an economy has been ranked as one of the top most economies which have helped them in order to come upward amongst the high levels of competiveness in the year 2009. Brazil has gained the eighth position amongst the various upcoming economies. Overcoming the competition with Russia as well as coming near to the two nations i.e. India & China, Brazil has narrowed the competitive gap. Various steps taken by this economy in the year 1990 has helped the economy in order to sustain & has a sustainable growth in the years to come. These steps have helped the economy in order to liberalize & attain a significant position amongst the competitiveness by providing a better environment in order to develop the private sector of the economy.

With the use of the upgraded technology, the private sector of the Brazil has developed various projects which would range from aircraft to marines & from a satellite to research in space & launching centre. Brazil’s technology was majorly responsible in order to form a team which would be responsible to construct the International Space Station (ISS). The Brazilian team is pioneered in various fields such as production of ethanol, etc.Brazil along with Mexico has always been in front of the Latin America’s multinationals organization, enterprises. This has helped the Brazilian economy in order to have high quality of technology. With the implementation of the same, the Brazilian economies have been able to change the overall economy & convert it into a globalised, upcoming economy amongst all other economies. This change amongst the local Brazilian companies has helped in order to invest a huge amount abroad & thereby recognize that an increase portion of the revenues has been invested internationally.

This economy has been regarded as one of the tope economies which have deep oil refineries & approximately 73% of the reservoirs have been extracted till date. Based on the statistics by big government officials, this economy is the very first capitalist country which has approximately ten big car assembled organizations included in the Brazilian territory.

This economy still has high levels of inequality, though the terms have changed & the level of inequality has also diminished. This economy has been regarded as one of the largest economies all over the globe in the year 2008. According to the statistics by Forbes 2011, this economy has high numbers of billionaires. This number is quite large as compared to the other big economies such as Latin America, Japan, etc.

1. 2.      Gross Domestic Product

Gross Domestic Product i.e. GDP refers to a measure which would help in order to see the real market value of an economy. This also measures the good & services produced by the country in a stipulated period of time. GDP refers to one of the primarily value which would help the economy to measure the economic activity in a given country. GDP refers to a tool which would help any given economy to see the level of productivity as well as how effective the country to utilize, reserve its resources responsible to product the goods & services.

The service sector is the largest component of GDP at 66.8 percent, followed by the industrial sector at 29.7 percent (2007 est.). Agriculture represents 3.5 percent of GDP (2008 est.). Brazilian labor force is estimated at 100.77 million of which 10 percent is occupied in agriculture, 19 percent in the industry sector and 71 percent in the service sector.

The GDP of Australia is higher than that of the Netherlands however this statistic on its own does not tell us much about the quality of life or the standards of living that the citizens of each country enjoy, how the wealth that a nation produces is shared amongst its population, what environmental damage might have been caused to achieve the GDP and many other non tangible components. It can however provide an indication of the overall well being of individuals premised on the fact that the majority of people would prefer to have a higher income and therefore expenditure.

To understand the differences within an economy and how it is really performing against its peers we need to look deeper into the data behind the GDP. The charts below show, the components that go into producing the GDP of each Country.

Like most western economies the services sector contributes a large portion of GDP to both economies. This is representative of a developed economy that has moved from the basic subsistence agricultural type industries towards a higher fulfillment of consumer desires that the services sector provides. Services in Australia are chiefly driven by domestic consumption this may be largely due to geography since Australia is quite remote compared with European nations and therefore trade becomes more expensive. In contrast the Netherlands relies heavily on foreign trade especially amongst its EU associates to increase its services production. Geographically it is ideally placed to trade with other European nations and has developed a reputation for providing stable port facilities without industrial relations turmoil. This is evidenced by the fact that the main seaport (Rotterdam) is the largest port in Europe handling more than twice as much cargo as its nearest rival {The Economist Intelligence Unit}.

1. 3.      Households Savings:

Households have been saving a significantly larger proportion of their disposable incomes in recent years than in the previous two decades. This turnaround in saving has been accompanied by a moderation in the household sector’s borrowing behaviour, which has seen the household sector’s gearing ratio stabilise after two decades of increases.

These changes seemed to intensify following the onset of the global financial crisis (GFC), with households reducing their accumulation of debt and re-allocating their savings towards lower risk assets such as deposits.

These developments have a range of implications for the Australian economy. Higher household saving — and lower household spending — in the context of Australia’s mining boom means that record levels of business investment can be accommodated with less reliance on overseas sources of funds than would otherwise be the case. By reducing aggregate demand, higher rates of saving and lower household spending may also reduce pressure on prices and wages and therefore interest rates, while more moderate rates of gearing will reduce households’ exposure to negative economic shocks.

The recent turnaround in household saving and borrowing

The household saving rate in Australia declined steadily from the mid-1970s to the mid-2000s, falling below zero for the first time on record in the early 2000s (Chart 1). Declining household saving over this period was accompanied by a related decline in household net lending, as strong growth in net borrowing (new borrowing less repayments) more than offset growth in net financial asset purchases.

Household net lending has recovered in recent years, in line with household saving, underpinned by a moderation in net borrowing and broadly stable net asset purchases as a share of household disposable income (abstracting from the one-off effect of superannuation policy changes).While broadly stable in aggregate, there was a significant change in the composition of asset purchases during the crisis. Households shifted towards deposits and divested themselves of riskier assets such as shares (Chart 2, Panel A). The increase in deposits reflected a number of factors. On the supply side, a probable increase in households’ risk aversion has seen a preference shift in favour of less risky assets, with higher interest rates on deposits supporting greater supply (Chart 2, Panel B). On the demand side, banks and other deposit-taking institutions shifted their funding base towards domestic deposits as credit availability in international capital markets tightened, and have continued to rely more heavily on deposits even as conditions have improved.

Another metric of comparison is Household Savings this is a measure of the amount of income that is not consumed and is saved for future use. These savings are the main source of domestic capital and are central to increasing productivity and hence long term economic growth. The savings rates can be used to compare how much a population is investing for future production of goods and services.

As can be clearly seen by the chart above starting out from almost the same rate in 2000 the two economies savings rates have taken decidedly different directions. Australians are consuming more than they earn and this is facilitated by an ever increasing reliance on the rapid growth of credit facilities. The increase in availability of credit has been principally driven by the sharp increase in property prices; Australians have unlocked the accumulated equity in their homes and are often using this for consumption rather than investment. This is quite a dangerous situation for Australia as although consumption stimulates the economy it is at the expense of future investment and thus highlights a weakness in the make-up of the Australian economy. Governments would be well advised to address the national savings issues by providing incentives to encourage a greater savings ratio.

Trade Balance:

1. 4.      Hours Worked:

A key indicator of how efficiently an economy is producing goods and services from its resources is a measure of the average hours worked. This statistic is derived from the total hours worked within a country divided by the number of people in employment.

The chart above states that, the Australians have the tendency to work more as compared to the Brazilian population. The hours invested by an average Australian has resulted in varied results. This shows that the hours invested by an average Australian would help to enhance the overall productivity of the Australian economy. In order to have an in depth knowledge regarding the same, the GDP per Capita & the total hours which have been worked would describe the actual productivity of the workforce of the two economies i.e. Australia & Brazil.

Looking at the graph of Real GDP per Hour, it could be seen that the Brazilians in spite of having the same GDP as compared to Australians are having a high standard of living. It could be seen that, the hours worked by an average Brazilian is less as compared to Australians, but still they possess a better standard of living. The real GDP per hour for both the economies i.e. Brazil as well as Australia is downward sloping from the year 2003-2004. There has been a slow downward slope in the same.

The varied figure in the graph above could be explained with the various components of the two main economies i.e. Brazil & Australia. It could be seen that, the distribution of the various components would contribute towards the enhancement of the GDP of the economy. The major part of the service sector of Brazil has contributed towards the rise of the GDP. Brazil should also focus upon the agricultural & the other sectors as well.

1. 5.      Conclusion

From the data presented above, there are many similarities between the Economies of Australia and the Brazilian economy. The rate at which the GDP has been increasing based upon the per capita income is quite similar. This rise in the GDP has been mainly due to the predominately on the services sector. However, based upon deeper examination of the data it has been demonstrated that the economies really are quite different.

Australia has much greater reliance on Commodities and Agricultural produce, the current resources boom has fuelled growth in the Australian economy; however historically resources and agriculture have been in a long term downward trend and the current resources activity is a normal cyclical event that will eventually return to an equilibrium state where the downward trend will continue.

The services sector in Australia whilst contributing significantly to GDP is predominately driven by domestic demand. The Australian economy is net importer form the rest of the world, it digs up its resources exports them and then buys them back as value added finished goods. The Trade Deficit is growing, and in the long run this is an unsustainable trend; the AUD is trading at a high level which is exacerbating the situation.

Australians currently have a negative savings rate and have accessed equity in their assets (predominately housing) to finance consumption, again in the long run this is an unsustainable situation as there is insufficient savings that can be used for future investment in the factors of production. Whilst the current GDP per capita is above the OECD average, Australians work longer hours to achieve this and hence have less available time for pursuit of any other activity.

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