Macroeconomic Performance, International Trade, Investment Indicators - China. the US and Australia - Case Study Example

Economics 1. Summary of key macroeconomic performance, international trade and investment indicators over the last 3 years for each country USA Macroeconomic performance can be evaluated in terms of a country’s economic growth, inflation and unemployment. With regard to economic growth, which is the growth in the inflation-adjusted market worth of services and goods produced in country over a specified period of time, the USA’s gross domestic product (GDP) growth has been low but stable over the last three years. In 2012, there was a 2.3 percent growth in GDP, which declined to 2.2 percent in 2013 but increased again to 2.4 percent in 2014 (The World Bank 2015a). Inflation, which refers to a sustained rise in the general prices of services and goods in a country, has been considerably low with regard to the USA economy. The inflation level was at 2.1 percent in 2012, it decreased to 1.5 percent in 2013, and increased slightly to 1.6 percent in 2014 (The World Bank 2015b). Regarding unemployment, which refers to the proportion of the labour force that is not employed but available for and looking for employment, the USA has experienced a declining trend since 2012. In 2012, the unemployment rate of the country was 8.2 percent and decreased to 7.4 percent in 2013 (The World Bank 2015c). In 2014, the rate dropped further to 5 percent according to data provided by the US Bureau of Labour Statistics (2015). USA’s trade (sum of imports and exports of services and goods as a percentage of the country’s GDP) has been in the range of around 30 percent over the last three years. In 2012, the proportion was 31 percent, which decreased to 30 percent in 2013 (The World Bank 2015d). In 2014, USA’s trade as a percentage of GDP remained steady at around 30 percent (Han & Soroka 2014). China China’s GDP growth has been relatively high over the last three years although a decline has been observed since 2012. In 2012, the country’s GDP grew by 7.8 percent but declined to 7.7 percent in 2013, dropping further to 7.4 percent in 2014 (The World Bank 2015a). In terms of inflation, China has experienced a declining increase in the price of goods and services since 2012. The inflation rate was 2.7 percent but the level decreased to 2.6 percent and dropped even further to 2.0 percent in 2014 (The World Bank 2015b). Concerning unemployment, China had an unemployment rate (as a percentage of the total labour force) of 4.5 percent in 2012, which increased marginally to 4.6 percent in 2013 (The World Bank 2015c). Although the 2015 World Bank data does not include official statistics on China’s unemployment in 2014, Liu (2014) reported that the rate in the first quarter of 2014 was 8.7 percent (when rural migrants in major cities are included) or 6.9 percent (excluding rural migrants in major towns). With reference to trade, China’s sum of imports and exports as a proportion of the GDP declined slightly between 2012 and 2014. In 2012, the country’s trade accounted for 46 percentage of the GDP, declining to 44 percent in 2013 and to 42 percent in 2014 (The World Bank 2015d). Australia Australia’s GDP growth has been relatively low and showing a decline since 2012. The country’s GDP growth declined from an increase of 3.7 percent in 2012 to a constant increase of 2.5 percent in both 2013 and 2014 (The World Bank 2015a). In regard to inflation, the country’s inflation level has been increasing over the last three years. In 2012, Australia’s inflation level was at 1.8 percent, but this increased to 2.4 percent in 2013 and further to 2.5 percent in 2014 (The World Bank 2015b). With respect to unemployment, Australia’s rate of unemployment has been increasing steadily over the last three years. The unemployment rate (as a percentage of the total labour force) stood at 5.2 percent in 2012, grew to 5.7 percent in 2013, and increased further to 6.2 percent in 2014 (The World Bank 2015c; Australian Bureau of Statistics 2015). Australia’s trade as a percentage of the country’s GDP remained steady at slightly above 40 percent. The proportion was 43 percent in 2012, which then dipped to 41 percent in 2013 and increased slightly to 42 percent in 2014 (The World Bank 2015d). Nigeria Over the last three years, Nigeria’s economy has experienced a notable increase in terms of GDP. The country’s GDP growth slowed from 4.9 percent in 2011 to 4.3 percent in 2012. However, the GDP growth rate increased to 5.4 percent in 2013 and further to 6.3 percent in 2014 (The World Bank 2015a). Nigeria’s inflation level has been considerably high over the last three years given that it has averaged above 5 percent. The inflation rate was significantly high in 2012 at 12.2 percent. However, it reduced to 8.5 percent in 2013 and further to 8.1 percent in 2014 (The World Bank 2015b). In regard to unemployment, Nigeria’s unemployed population as a percentage of the total labour force has not changed much over the last three years. The rate remained unchanged at 7.5 percent in both 2012 and 2013 (The World Bank 2015c). The rate remained the same into the first quarter of 2015 (Ogunlesi n.d.). In relation to trade, Nigeria’s trade as percentage of the country’s GDP has declined have recent years after having been relatively high initially. In 2012, the value of Nigeria’s trade as a percentage of GDP stood at 44 percent (The World Bank 2015d). However, the proportion decreased significantly to 31 percent in 2013, followed by a slight drop to 30 percent in 2014 (The World Bank 2015d). 2. Comparison of the USA, China, Australia and Nigeria in terms of their macroeconomic, trade and investment performance over the last 3 years The four countries – USA, China, Australia and Nigeria have had different outcomes in terms of their macroeconomic performance. Looking at GDP growth, China recorded the highest GDP growth compared to the three other countries between 2012 and 2014. This is because China’s GDP growth was consistently above 7 percent over the three-year period. Even then, among the four countries, China is the one whose GDP shows a declining tendency over the three years. Starting at a GDP growth of 7.8 percent in 2012, the declining trend is seen in the drop to 7.7 percent and 7.4 percent in 2013 and 2014 respectively. On the other hand, although the USA recorded marginal changes in GDP growth, there was an overall improvement from 2.3 percent in 2012 to 2.4 percent in 2014. Australia’s performance in terms of GDP growth can be said to have involved a decline followed by retardation given that the GDP grew by 3.7 percent in 2012 and remained at 2.5 percent over the next two years. Nigeria can be said to have experienced a significant GDP growth. This is because the country’s GDP grew appreciably from an increase of 4.3 percent in 2012 to an increase of 6.3 percent in 2014. See figure 1 below for a comparison of the four countries’ GDP growth. Figure 1: Comparison of the countries’ growth rates Source: Data derived from The World Bank (2015a) USA’s 2.4 percent GDP growth in 2014 was the strongest over three-year period and since the global financial crisis and was attributed to an increase in personal expenditure coupled with low oil prices (Sharf 2015). Generally, there was a slump in the GDP growth of both Australia and China over the three years. The contraction in China’s GDP growth over the three-year period has been attributed largely to as decline in the country’s industrial production (Sky News 2015). Australia‘s slump in GDP growth is attributed to a number of things. The first one is that the country’s real growth has been weak while nominal growth has been even worse. Second is that commodity prices in Australia have been falling over the last three years. The implication of this is that even if production is increased, the products or services are sold at lower prices, resulting in little changes in GDP. On the other hand, although investment in Australia has generally been low, the economy has been buoyed by the mining sector, which has remained relatively strong (Jericho, 2014). From figure 1, it can see that Nigeria is the only country whose GDP growth increased steadily between 2012 and 2014. This is attributed to an increase in manufacturing and growth in the services industry, which supplemented the country’s traditional reliance on oil exports (JO’S 2014). Inflation trends among the four countries were also varied over the three years. The same applies to unemployment rates in the four nations. A comparison of figures for inflation and unemployment for the four countries is shown in table 1. Table 1: Comparison of inflation and unemployment rates for the four countries Inflation Unemployment 2012 2013 2014 2012 2013 2014 USA 2.1 1.5 1.6 8.2 7.4 5 China 2.7 2.6 2 4.5 4.6 8.7 Australia 1.8 2.4 2.5 5.2 5.7 6.2 Nigeria 12.2 8.5 8.1 7.5 7.5 7.5 From table 1, no clear consistent relationship can be made between inflation and unemployment figures. For instance, using the Phillips Curve, it would be assumed that there is a negative correlation between the rate of inflation and the rate of unemployment (Mankiw 2012, p. 787). That is, a high rate of inflation is associated with a low rate of unemployment and vice versa. While this seems to be true for data on China, it does not apply straightforwardly for the other three countries. It can be seen that for China, as inflation declined, unemployment increased. However, the same is not true for the other countries. Another argument is that inflation leads to an in increase in unemployment (Pento 2009). From table 1, this true to some point for the data on USA. However, there seems to be no clear relationship between inflation and unemployment as seen for the four countries. This is attributable to the point that inflation is caused by many factors, including an increase in the supply of money (Mankiw 2009, p. 372). Turning to trade and investment, Australia and China had consistently high trade to GDP ratios at over 40 percent in all of the three-year period. Although the ratios decreased slightly, they are consistently above 40 percent. On the other hand, the USA’s trade to GDP ratio varied between 30 percent and 31 percent. The value was 31 percent in 2012, reducing to 30 percent and in 2013 and remaining constant in 2014. Among the four countries, Nigeria’s trade to GDP ratio showed the widest variation over the three years. The value dropped from 44 percent in 2012 to 31 percent in 2013 and 30 percent in 2014. See table 2 for a comparison of the values. Table 2: Comparison of the four countries trade as a percentage of their GDP 2012 2013 2014 USA 31 30 30 China 46 44 42 Australia 43 41 42 Nigeria 44 31 30 Source: Data derived from The World Bank (2015d) and Han and Soroka (2014) According to the OECD (2010, p. 58), the most frequently utilized indicator of the significance of international transactions in relation to a country’s level of domestic wealth creation is the ratio of trade to GDP. This ratio is the average proportion of imports and exports of services and goods in GDP. The differences seen in terms of the four countries’ ratios of trade to their GDP say a lot about the importance of trade to the four countries. It is indicated that international trade and investment tends to be more essential for nations that are small and bordered by neighboring nations that have open trade regimes than for large and considerably self-sufficient nations (OECD 2010, p. 58). Other factors that help increase a country’s trade include presence of multinational firms, trade policies, culture and the country’s economic structure (OECD 2010, p. 58). Looking at the four countries, it can be seen that the USA seems to have had the least level of trade. This can be explained by basing on the fact that the USA is a large economy that tends to be self-sufficient. On the other hand, Nigeria’s trade also declined in 2013 from a high of 44 percent to around 30 percent although the country is a relatively small economy. One of the main reasons for the decline is the poor performance of Nigeria’s oil in the global market due to low prices (African Development Bank Group 2013, p. 11). Brief analysis of the countries’ major companies and the importance of infrastructure in the economic development of these countries USA Some of the USA’s major companies based on revenue include Walmart and ExxonMobil. Established in 1962, Walmart is a general merchandiser operating a chain of retail stores in the United States and internationally. The company operates more than 11,500 retail stores under 65 brands in 28 countries. It also has e-commerce websites in 11 countries. Walmart serves more than 260 million customers weekly and has employed more than 2.2 million associates across the world (Wal-Mart Store 2015). In the 2015 fiscal year, the company made net sales worth $482.2 billion (Wal-Mart Stores 2015). As of July 2015, Walmart’s capitalization was worth $234 billion (Covert 2015). ExxonMobil is the biggest publicly-traded international oil and gas company (Exxon Mobil Corporation 2015a). The company was formed in 1999 after the merger of Exxon and Mobil, which have a history dating back to 1859 (Exxon Mobil Corporation 2015b). The company has operations involving exploration, refining, and marketing of oil and gas products as well as manufacturing of petrochemicals in countries located in six continents (the US included) (Exxon Mobil Corporation 2015c). Exxon Mobil has a workforce of more than 83,700 employees working in different bases in the six continents (Forbes 2015a). As of February 2014, the company had a market value of approximately $392 billion (CNN Money 2015). Infrastructure has played a significant role in the economic development of the United States. In particular, building roads, power transmission lines, bridges, laying telecommunication lines and making other improvements creates jobs (Embassy of the United States of America 2012, p. 1). When such projects are completed, they help the country increase its wealth as well as people’s living standards. For instance in the United States, the construction of railroads and national highways ignited growth and development as companies could transport their industrial products. As well, recent investments in telecommunication and Internet networks have enabled the growth of companies such as Google, Amazon, Apple and Walmart. China Among the major companies in China are Sinopec and the Industrial and Commercial Bank of China (ICBC). Sinopec Group or China Petrochemical Corporation is a fully state-owned petroleum and petrochemical corporation that was established in 1998. The company is headquartered in Beijing and has a registered capital of CN¥ 231.6 billion. Its main operations include exploration and production of oil and gas, industrial investment and management, oil refining, marketing of oil and gas products, and construction and setting up of petrochemical and petroleum equipment among others (China Petrochemical Corporation 2014). Sinopec Group operates in Europe, North America, Russia, Asia and the Middle East and has employed more than 30,000 overseas workers (Munich Innovation Group GmbH 2014). ICBC is a banking institution with diversified services including personal banking, corporate banking, e-banking an international banking. The bank has a presence in six continents, operating in 41 countries and regions. It offers financial products to more than 5090 corporate customers as well as 465 million individual customers. By the end of 2014, ICBC had total assets amounting to CN¥ 20,609,953 – making it one of the largest listed banks in the world (ICBC n.d.). Infrastructure development has been pivotal in China’s economic development. The government of China has long realized that a modern economy is pegged on dependable railways, roads, telecommunication and access to electricity. Between the 1990s and 2005, many Chinese benefited from upgrades of telecommunications and power networks. Between 2001 and 2004, there was massive investment in rural roads to spur development in rural areas by linking them to urban areas through transportation of goods and people. The overall aim of upgrades in transport infrastructure is to have an efficient logistics system in China, which has enabled economic development in the country. Australia Some of the major companies in Australia include BHP Billiton and Woolworths Limited. BHP Billiton is one of the largest mining companies in the world, with headquarters in Melbourne, Australia (Gilroy 2015). It was created following a merger between BHP and Billiton in June 2001. The company undertakes prospecting, mining and marketing operations for its resources (iron ore, coal, oil, copper, silver, manganese, uranium, aluminum among others) in about 100 locations in 25 countries (Gilroy 2015). As of may 2015, BHP Billiton had a market capitalization of $119.5 Billion (Forbes 2015b). Woolworths Limited is Australia’s largest a retailer operating a chain of supermarkets under the brand name Woolworths Supermarkets. Woolworths operates 872 stores across Australia and has 111,000 employees (Woolworths Limited 2012). It also has 156 supermarkets in New Zealand (Shape Your World 2014). With its operations mostly localized, the supermarket sources 96 percent of all fresh vegetables and fruits and 100 percent fresh meat from Australian growers and farmers. Woolworths also markets its products online (Woolworths Limited 2012). By September 2015, Woolworths had attained group sales worth A$ 60.7 billion, which represents sales in 2015 (Woolworths Limited 2015). Australia’s investment in infrastructure has been premised on the notion that improved infrastructure networks with enhanced coverage are vital in facilitating access to markets as well as promoting trade and growth of the private sector (Pink 2008, p. 158). The government has therefore been making significant investments in infrastructural development. For instance, in its current plan, the Australian government is investing $50 billion over seven years in various transport infrastructure projects across the country to deliver transport that matches the needs of the 21st century (Commonwealth of Australia 2014, p. vi). The aim of such projects is to integrate regions that lag behind in terms of development into regional centers of growth, connecting products to markets to increase productivity, and increasing access to services (Pink 2008, p. 158). Such initiatives have aided Australia’s economic development. Nigeria Nigeria’s major companies include Nagode Group and Seplat Petroleum Development Company (Seplat). Established in 1988, Nagode Group is made up of businesses that are involved in manufacturing, distribution and logistics (Caulderwood 2014). The company started as a textile company but later diversified into the aforementioned businesses. Today, the operations of Nagode Group are spread across Nigeria as well as a number of other countries including Cameroon, China, South Korea, the United Arab Emirates and India (Nagode Industries Limited 2013). The group has a turnover of approximately $200 million per year (Caulderwood 2014). Seplat was formed in 2009 through the merger of Shebah Exploration and Production and Shebah Exploration and Production, both small companies based in Nigeria (Seplat n.d.). Seplat is involved in the upstream exploration and production of oil and gas, with a focus on Nigeria (Seplat n.d.). By April 2014, the company was valued at $1.91 billion upon listing on the London Stock Exchange (Kent 2014). Seplat produces about 62,000 barrels of oil a day from its oil blocks (Nagode Industries Limited 2013; Caulderwood 2014). Nigeria’s economic growth has been slow due to a generally poor development of infrastructure. According to Olufeni et al. (2013, p. 432), most of the infrastructural facilities in Nigeria were built in the 1970s and therefore do not meet the current developmental needs of the country. Poor communication and Internet infrastructure has also hindered penetration of broadband usage (Fielding-Smith 2014). In particular, underinvestment in the transport sector (aviation, railway and roads) has led to reduced productivity and competiveness of firms (Olufeni et al. 2013, p. 432). As well, huge losses are incurred as a result of the poor state of the transport network in the country (Ighodaro 2009). 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