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Despite ranking just 52nd in terms of population, Australia's economy is the 12th largest in the world thanks to a record 21 consecutive years of annual growth.

The country's remote location and western based culture has meant that it has to had to form a very independent economy. While the country has strong trade relations with many countries, its isolation from much of the rest of the world has meant that the government is trying to diversify its output levels to avoid becoming reliant on any one source of income.

Fortunately, the country is blessed with vast natural resources and can support itself in many different areas.

Australia produces almost all its own foodstuffs and has strong exports in the agriculture industry including wool, livestock, wheat and minerals.

How strong is the economy?

Gross Domestic Product is the market value of everything a country produces in a given time frame; this can include any raw materials mined, any goods produced and any services rendered.

China and the US typically rank as the countries with the largest GDP, however, as they have significantly larger populations than most countries, GDP per capita is a much more reliable measure.

GDP per capita is the Gross Domestic Product over one year divided by the average population in that year.

GDP (nominal) per capita
GDP per capita
Source: International Monetary Fund

 

The mining industry in Australia has become one of the main contributors to the country's economy, supporting it through a time when many of the world's economies slipped into recession in the aftermath of the global financial crisis.

How did Australia cope with the global financial crisis? 

Prior to the global financial crisis (GFC), the Australian economy underwent 17 consecutive years of growth. With the onset of the GFC, the then-Rudd government lessened the impact on Australia by introducing a US$50 billion stimulus package and lowering interest rates to record lows.

While other governments, including the UK and the US, took similar steps in an attept to avoid the worst effects, Australian budgets ran surpluses during boom times unlike its western cousins.

This meant that when the GFC struck, Australia was in a much better position to cope with the fallout while most European and North American economies, which had ran defecits during better times, sank into recession. The Australian economy was the first to return to growth in the wake of the GFC, recording 1.4% growth in 2009 - more than any other country in the Organisation for Economic Co-operation and Development (OECD) and the first to increase interest rates, which it did seven times between October 2009 and Novemner 2010.

Australia's stimulus package also coincided with increased demand from China, which led to the mining boom.

What is the mining boom?

Australia's initial expansion lies in mining - by the mid-19th century Australia was one of the world's largest exporters of gold - and it is mining that has propped up the country's economy in more recent and perilous economic times.

In the last two decades, China has undergone unprecedented levels of economic development and is now on track to overtake the US as the world's largest economy.

In order to fuel much of its expansion, it has used minerals and natural resources in Australia.

In approximately 300 separates mines of varying size and mainly centred in Western Australia and Queensland, Australia has suppled Chinese demand and a large proportion of the world's demand for several resources including:

The mining boom contributed almost US$150 billion (£94 billion) a year to the Australian economy at its peak in 2010. The industry's capital expenditure was higher than any other at over US$45 billion (£28 billion); the industry also had the highest average salaries per employee.

There have been reports recently that the mining boom is over as other world economies begin to recover and Chinese demand slows. However, Prime Minister Julia Gillard, along with several academic studies, showed that the focus of the industry would simply switch from the rapid levels of investment, development and construction to maintaining existing mines.

The prime minister said she expected the mining boom to run for decades yet.

What other industries are important to Australia?

While the mining boom has allowed Australia to avoid the economic perils seen in Europe and the US, the industry's contribution to GDP is dwarfed by the services sector.

The services sector contributes 71.4% of the country's total GDP and includes the tourism, media and education industries. The finance industry, centred in Sydney's Central Business District, is home to some of the largest companies in the world as well as the Australian Securities Exchange - the 10th largest stock exchange in the world..

How much does it cost to live in Australia?

The cost of living in Australia has been labelled expensive in recent years. In past times, British residents could holiday in Australia and make their money go quite far due to a strong British economy and a kind exchange rate.

However, in recent times, the Pound Sterling has suffered internationally and the exchange rate favours the Australian Dollar. While this means that tourists may have to better budget their trips now, it does not necessarily mean the cost of living is substantially higher.

An economic measure known as Purchasing Power Parity (PPP) is designed to measure the value of each country's currency. PPP theoryessentially determines the costs of identical goods or services in two different countries.

This calculation offers a basic overview of the costs of certain things which are available in most countries; the two most popular such measures are the Big Mac Index and the Starbucks Latte Index. These two indices measure the percentage difference between the cost of a McDonald's Big Mac and a Starbucks Latte compared to its American equivalent.

Essentially, the Big Mac Index and the Starbucks Latte Index can be used to give a rough outline of basic living costs:

Purchasing Power Parity
Purchasing Power Parity
Source: The Economist