Performance of Various Indicators of Business Cycle in the Energy Industry in Australia - Case Study Example

Running Headers: ECONOMICS-REPORT Name: Course: Institution: Instructor: Date: Purpose of the report This report will help us understand the performance of various indicators of business cycle in the energy industry in Australia for the financial year ended 30 June 2010. The report will also state the current business cycle the Australian economy is at and where it is expected to be in one year. The international energy industry has discovered numerous options to meet the rising energy requirements in the industrialized nations where production demands are met with power supply from diverse energy resources globally (Donald, 2010). The energy industry in Australia comprises such sectors as electricity, oil, natural gas, solar, coal, wind, biofuel, and geothermal power sectors. Australia exports around 76 percent of energy it produces. Coal accounts for 52 percent of energy exports by energy substance and 59 percent by worth. Australia is a main user and exporter of coal, the burning of which generates carbon dioxide. Recently, fossil fuels offer 96 percent of consumed energy in Australia. The growth of commercially viable low emission energy expertise is fundamental to achieving considerable and reasonable decline in greenhouse gas emissions (Makower, et al, 2009). Clean energy technologies could also place Australia for sustained economic development from its natural endowments in gas, coal and renewable natural resources. The continent is speedily building international competence in energy effectiveness, renewable energy and low emissions expertise (International Energy Agency, 2007). Renewable energy is an important component of Australian low emission energy blend and is significant to the country’s energy security. It plays an important responsibility in lessening Australians greenhouse emissions and assisting the country stay on track to meet its objective. The Australian government support for renewable energy helps industry growth and development, lessens barriers to the state electricity market, and gives community way in to renewable energy. Solar energy: Australia is a sunny place and 90 percent of the continent absorbs solar radiation of 1950 kilowatt hours per square meter annually (HM Treasury, 2006). The solar industry is internationalized, sophisticated and has developed strongly supported by the amalgamation of a high skilled personnel, a viable electricity market, research and government support(Donald, 2010). Currently there are more than 284 solar projects in service across Australia while 48 more projects have been anticipated. This sector includes sectors such as solar hot water and solar thermal. Wind: wind energy is a developed market in Australia being supported up by growing domestic energy market. Currently there are 87 productive wind farms in Australia while 129 projects have been proposed. Australia is the first country to develop electricity supply using wind. The sector has been given $ 14 million funding by the government for its operations. Geothermal: Australia has vast prospective in geothermal industry. It has been positioned fourth in this sector due to its important resources and large market prospective. The sector has been supported by government through a funding of $58.9 million energy security program to obtain geo-scientific data appropriate for electricity generation, (Worldwatch Institute and Center for American Progress, 2006). Indicators for business cycle Unemployment rate- Australian Unemployment Rises in July- Australian unemployment rate increased to5.3 percent in July as the number of persons entering the labour force outpaced escalation in new jobs. A sum of 631,800 persons was jobless in July from 607,200 in the preceding month and this raised the joblessness rate from Junes 5.1 percent as put forward y the Australian Bureau of Statistic. Employment amplified by 23,500 to almost 11.23 million persons due to increase in part time employment whilst full time occupation cut slightly. The unemployment rate in Australia rose to 5.3 percent in July compared to 5.1 percent in June of this year. Government Consumption-Government spending has persisted to prop- up Australian economic expansion. In the June quarter, government consumption contributed 0.3 percent to the economic growth (International Energy Agency, 2007). Gross Domestic Product (GDP) - Australian Economic Growth Accelerates- Gross domestic product is the market value of all finished goods and services produced in a country at a certain period. GDP growth rate is used to determine the overall economic growth. Growth domestic product is theoretically calculated as; GDP = C + I + G + (EX - IM). Australian economy developed at the fastest rate in three years previous quarter. GDP grew at a yearly pace of 1.20 percent by June 2010 as put forth by the Australian Bureau of Statistics. The economy developed 3.3 percent from a year prior (Makower, et al, 2009). The private and public segments added to expansion in the economy in the June quarter. Consumption- The household consumption implied price deflator increased by 0.3 per cent in the June quarter with yearly growth stable at 2.7 per cent. Business cycle Business cycle can be defined as economic wide irregular oscillations in production or economic action over a period of time. These oscillations occur on a long-term growth tendency and it involves shifts between phases of moderately quick economic growth (boom or expansion) and phases of virtual decline or stagnation (recession or contraction). The fluctuations are measured by the growth rates of real domestic products (GDP) and these cycles don’t follow a conventional or mechanical periodic pattern. The figure below shows various stages of the business cycle. The first stage is expansion or boom when the economy is recovering rapidly. The boom period is accompanied by inflationary pressures, the second stage is contraction or recession when the economy is stagnating and the real GDP falls. It is a time of reduced economic growth where production, buying and selling weakens. A severe recession is referred to as a depression (Spratt, and Sutton, 2008). Recovery is the point at which the economy channels out and begins to uncover its way up to improved financial footing and is characterized by increased production, buying and selling. Boom Boom Recovery Recession The Australian economy is currently at the recovery period of the business cycle. This can be seen through the acceleration of the economic growth. The Australian economy grew by 1.20 percent by June 30th 2010 with an annual growth standing at 3.3 percent compared to 2.6 percent in the last quarter. Various indicators contributed to this growth with household consumption contributing 0.9 percent to the overall GDP growth. Net exports added 0.4 percent while investment contributed 0.3 percent and another 0.3 percent from government consumption. Over the year productivity grew by 0.7 percent. Some sectors have contributed so much to economic growth such as construction sector, telecommunications, rental and hiring and real estate services. In the next one year, the Australian economy may be at recession. This is due to the return of the conservatives to the minority government thus there will be no balance of power and the increasing indebtedness of the household sectors (HM Treasury, 2006). Evidences of research to analysis the sectors using the indicators Australia exports around 76 percent of energy it produces. Its comparative advantage in the export of the energy has reflected the natural wealth of the continent and economic growth. Wind energy has contributed so much to the Australian Gross Domestic Product. There is adequate land in the Australian continent for large scale wind energy expertise installations and sufficient specialized skill is accessible across the sector. The Australian government has supported the wind energy sector and has funded the sector with $14 million for wind energy production attuned with the state electricity market. The 87 productive wind farms and the 129 projects on proposal have also helped in solving the problem of unemployment among the population (Plunkett, 2007). The Australian solar energy industry is internationalized therefore adding a good percentage to the economic growth. The Australian government has also supported the solar industry by funding it with $4.5 billion clean energy project which consists of Australian solar institute and solar flagships program which indicates the government desire to develop global solar energy industry. The 284 solar projects in Australia have reduced unemployment problems. Solar cities have been set up in various locations such as Townsville, Adelaide, Alice Springs and p Australian solar institute Perth among others around Australia which ensures household consumption. Through a $58.9 million energy security program, the Australian government has assisted the geothermal energy sector to explore and generate electricity for consumption and export. Current report has shown that geothermal energy will be supplying up to 2200MW of base load capacity for Australian state capacity market. The sector has also solved the problem of unemployment through the various projects, research and exploration in various sites (Lyster, 2006). Recommendations In order to ensure that the Australian economy does not stagnate in the next one year, Australia should avoid the return of the minority government. This will ensure balance of power and therefore effective control of the economy. Private investments should also try and begin to pick up to contribute to productive aptitude to enable the growth to uphold itself. The household sector should reduce its indebtedness and government support through sub dies should be put in place to ensure sustained growth. Conclusion The comparatively strong real Gross Domestic Product is excellent reports to Australian continent but it is not translating to employment expansion. Employment expansion is still not sufficient to absorb the pool of under-utilized labor and labor productivity growth is skating along the bottom. The energy industry has contributed much to GDP growth, employment, government consumption and consumption but not enough to curb the unemployment levels and ensure sustainable economic growth in Australia (Arthur & Sheffrin, 2003). The continent should take precautions to avoid cases of recession in the next financial year. References Aitken, Donald W. (2010). “Transitioning to a Renewable Energy Future”, International Solar Energy Society. HM Treasury (2006). “Stern Review on the Economics of Climate Change”. Retrieved From < www.ff.org/centers/csspp/pdf/20061031_tol.pdf > (Accessed August 9, 2010). International Energy Agency (2007). “Renewables in global energy supply: An IEA facts sheet”, OECD, 34 pages. International Energy Agency (2008). “Deploying Renewables: Principles for Effective Policies”, OECD. Makower, Joel, and Ron Pernick and Clint Wilder (2009). “Clean Energy Trends 2009”, Clean Edge. Worldwatch Institute and Center for American Progress (2006). “American energy: The renewable path to energy security”. Retrieved From < www.worldwatch.org/node/4528 > (Accessed August 9, 2010) Spratt, David and Sutton, Phillip, (2008) “Climate Code Red: The Case For A Sustainability Emergency”, Friends of the Earth, Melbourne. Solar Power Profitability: BP Solar Environmental News Network, 25 May 2005. 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