Comparison of Australia and Morocco Economies - Term Paper Example

Report on Comparison of Australia and Morocco Economies

• Introduction

The economies of different countries perform differently depending on the factors that drive these economies. The performance of different economies are compared using different economic parameters that directly relate to the activities that drive the economy. Australia and Morocco are countries whose economies that have recorded favourable growth rates amidst the varied factors that have faced that have adverse effects on economic performance. Morocco’s growth rates is lower than that of Australia and both have economies that to a high degree are controlled by the forces of demand and supply. Morocco uses the Moroccan Dirham as its currency and Australia uses the Australian dollar as its currency. This report is comparison of the economies of Australia and Morocco and it will focus on the economic growth and the living standard in these two countries. It will use economic growth and living standards indicators to assess their levels in both economies as well as investigate the relationship between economic growth and the living standards in Morocco and Australia.

• Economic growth of Australia and Morocco

Australia has been described as one of the best performing economies in the world where it has been described as the 12th largest economy in the world going by the total Gross Domestic Product figures. Australia has had a constant economic growth rate form the early 1960s which averages at 3.5% per year and it is characterised by low inflation rates and low levels of employment. The growth rate for the Australian economy has however suffered during global financial crisis periods and the economy has recorded slowed growth in its GDP. However the effect of global economic recession was comparatively and proportionately smaller and this was partly attributed to the stability of the Australian dollar to other currencies. The other reasons include the stability of Australia’s banking sector and the low inflation levels that the country has put adequate measures to maintain. It was because of this that the economy was able to post an economic growth in spite of the growth being reduced as compared to the previous years. For instance during the year 2015, the economy of Asia grew by 3.0% which was an increase from 2.7% in the previous year. This economic growth has been supported by Australia’s major economic sectors which include services, mining and agriculture sectors. The services sector accounts for about 75% of the employment opportunities in the country and it also accounts for approximately 70% of the country’s total GDP .

Australian GDP trend over the last 10 years

Source: World Bank

The economy of Morocco is describe as one that has a huge potential for growth. The current economic situation is that there is an increase in economic growth rate since there has been increased efforts to grow the economy. Over the past several years Morocco has posted an average growth rate of 4% in GDP and the projected growth rate for 2016 is 5.0%. The country’s economy has taken heavy hits from global financial crises because of several reasons. One of these reasons is that the country’s banking sector was not adequately insulated against the effects of an external global recession. The other factor was that the country’s economy has for a considerably long time been suffering from high inflation rates which have also had an effect on the activities at the Casablanca Stock Exchange. The other factor is that the currency exchange took a hit due to the country’s reliance on exports for income. Most of the employment opportunities in Moroccan economy are supplied by the services sector which includes mining of phosphate and manufacturing. They both account for over 70% of the GDP .

Moroccan GDP over the last 10 years

Source: World Bank

• Living Standards in Australia and Morocco

The living conditions for Moroccans are described as comparatively low as evidence by the low GDP per capita income. The GDP per capita (PPP) for the country has been an average of 1,391.17 USD while considering the years between 1960 and 2014. The lowest recorded PPP figure for Moroccan economy was 679.52 USD in the year 1966 and the highest recorded was two years ago, in 2014, at 2557.12 USD. This marks a 20% of the world’s average Purchasing Power Parity. The income inequality in Morocco has been increasing over the years. The rich have been getting richer as they are able to take advantage of the opportunities presented by the economy as it grows while the number of those living below poverty line has also increased. This has been caused by lack of proper policies that control the distribution of national resources. According to the World Bank, the poverty line is currently pegged at a daily expenditure of $1.25 per day. The people living on less than this amount per day are said to be living below the poverty line. The increase in the number of people living below poverty lines has been attributed to slow economic growth amidst the effects of global financial crises. Currently the number of unemployed population stands at 1,169,000 which represents a 10% unemployment rate. This was after the unemployment rate had reduced to 9.5% towards the end of 2015. This group mainly consists of the youths who are between 22-29 years of age. This youth unemployment is one of the significant contributing factors to income inequality. The human development index (HDI) for Morocco was comparatively low at 0.628 in 2015. The country was ranked at number 130 out of 189 countries that are included in the HDI .

Australia was ranked as the 15th country in the world in terms of GDP per capita in 2014. The country has had an average of USD 24558.99 GDP per capita from 1960 to 2014. The highest figure recorded for GDP per capita in Australia was USD 37828.25 in the year 2014 and the lowest was recorded in 1962 which was at USD 13397.88. These figures are attributed to Australia’s impressive national GDP which was ranked as the 12th largest in 2014. The income from the activities in the country is comparatively higher and this results in the favourable GDP. The high average PPP figures can be attributed to stability of the economy even during financial crises periods. The income inequality in Australia has been maintained at a minimum since most of the population is employed. However, since 2013, the income inequality has increased slightly due to the increase in the number of people in the middle upper class. The increase in this group of the country’s population has been attributed to the growth in the economy where most of the people in this group have taken advantage of the opportunities presented by the growth. Australia has got almost 0% of the population living below the poverty line as the country has been able to maintain a vibrant economy that is able to absorb the entire population. The services sector in Australia which includes mining and manufacturing has been able to employ majority of the population hence the poverty level and unemployment rate are almost zero. Australia has also posted impressive Human Development Index and inequality-adjusted Human Development Index figures of 0.935 and 0.891 respectively for the year 2015. The social progress index figure for Australia in the year 2015 was 86.42 which placed the country in the 10th position globally .

• Comparison of economic growth and standards of living between Australia and Morocco

Morocco and Australia have both recorded growth in their economies and improvement in their living standards. However, the rates for these two do not match in both countries with Australia posting figures that depict a strong economy while Morocco posts figure that depict a weak economy. Australia is performing better in terms of economic growth than Morocco due to several factors. The first factor is indicated by the country’s GDP which is higher than that of Morocco. Australia’s GDP is mostly generated by its service sector of the economy which involves manufacturing, mining and agriculture. Similarly, Morocco’s GDP is majorly generated by its services sectors which includes manufacturing and mining. The reason for the difference in total GDP form these sectors of the two economies is that unlike Australia, Morocco manufactures form its natural resources. Australia simply mines and exports to earn income. The value addition services in Morocco are not done efficiently and hence the difference in GDP income. The second major reason is that global recessions have different impacts on the two economies. Australia has a stable economy and hence global financial crises do not have major impacts unlike in Morocco where the economy is severely affected. Australia has a string banking system that acts as a critical pillar of support for the economy during financial crises. It has also been able to maintain a low rate of inflation through strong fiscal and monetary policies thereby insulating the economy from the negative effects of a financial meltdown in the global economy. Moroccan economy continues to experience a high rate of inflation and hence it remains vulnerable to the effects of a global financial crisis. It usually takes a significantly long time for an economy to recover from the effects of a financial crisis and hence the poor performance of the Moroccan economy as compared to the Australian economy.

A comparison of the living standards between Morocco and Australia reveals that the living standards in Australia are by far better that those in Morocco. This is indicated by the difference in the Purchasing Power Parity where Australia has a higher figure than Morocco. This difference can be attributed to several factors and the first factor is the income inequalities. The gap between the rich and the poor in Morocco is significantly large as compared to Australia where the population living on less than $1.25 per day is almost non-existent. The second reason is that the unemployment rates. A significant proportion of Morocco is unemployed and it mainly consist of the youth. The unemployed are not able to meet some of their basic need and most live below the poverty line. Lack of jobs for this section of the population causes in increase in income inequality in Morocco, lowers the Human Development Index as well as the Social Progress Index and lowers the standards of living.

• To what extent has economic growth contributed to living standards in these countries?

According to the investigation conducted in this report, there exists a direct relationship between economic growth and living standards in Morocco and Australia. Economic growth affects living standards in terms of the purchasing power parity which is calculated using the total country’s GDP figures. Economic growth also determines the vibrancy of sectors in the economy and these sectors absorbed the population in terms of providing employment. The economic growth in Australia in inclusive unlike in Morocco where it is exclusive and its ends up in a larger income inequality gap. The high living standards in Australia are as a result of the country’s higher economic growth. The living standards in Morocco are low because of the low GDP and inadequate income distribution policies in the country. If Morocco had a higher GDP that was evenly distributed across all sectors then the living standards would significantly improve.