BUSINESS MACROECONOMICS ASSIGNMENT 2012



Q1. Australia's two speed economy: Causes, Advantages and Disadvantages.

Two-speed economy is a phenomenon which an economy experiences when the growth potential between/among the sectors of economy, agriculture and services or manufacturing, is different. In Australia, mining sector is at much faster pace than manufacturing and services sector and agriculture sector. Sydney and New South Wales are performing poorly in terms of growth as these regions are mainly manufacturing and agricultural producing. On the other hand, Western Australia and Queensland are growing at high speed as these two mainly hosts mining regions.

Several factors are causing the two-speed economy of Australia. Some of the factors which are significantly causing disparity between/among the sectors are: property boom and the associated household debt, trade for base metal commodities, rising inflation, fuel prices and interest rates, and fiscal drag. These factors are leading to an economic slowdown in Sydney are other areas which has bankrupt many households and will continue to do so if disparity will continue to exist or even grows among sectors for a considerable period of time as feared by many Australian economists.

Several factors are contributing in slowdown of Australian agriculture sector growth ranging from low soil fertility, water security, drought, global warming, weeds, biosecurity, climate change etc. tariffs have also risen in the countries where Australian agricultural is mainly exported (particularly in Japan and Europe). Other countries (particularly Thailand and India) have made their agricultural sector more competitive by giving subsidies to their farmers, thus made Australian agriculture products less competitive. Scandals like involvement of Australian Wheat Board in illegally bribing Iraqi officials have also delivered a major blow to the international standing and reputation of Australian agriculture officials. Thus people are shifting themselves from agriculture sector to mining and manufacturing sector which are more promising and offers more growth to them.

Advantages

One of the possible advantages of multi-speed economy is the prioritization of resources. Australian government can sharply focus its attention towards the sectors which are promising and growing at fast pace and invest more in the sectors so that unemployment can be minimized and overall performance of Australian economy can be maximized. The prioritization will also help Australian government in finding out the causes of low growth in other sectors and take remedial step to enhance their performance. This way Australian government can forecast and gauge the results and economy of Australia can move forward in more systematic and organized way.

Australian government can strengthen its currency through earning more foreign exchange by maximization of production in the sectors which are performing good and then exporting the surplus they have produced (Greenspan, 2001).

Manufacturing sector is skill based therefore offers more diversification in economy than agricultural sector. Australia is an economy which produces almost from steel, plastics to aerospace. Australian economy is not just limited to building motor cars or other electronic goods; it has the capacity to build jet fighters and submarines too. Which means through investment in broadening the skill base, government can enhance the ...