Question

What do you understand by the statement “For Australia to do really well, the rest of the world has to do well” – explain?

Answer 1

In the modern world, due to the advent and ascent of globalization and free trade, the goods and financial markets have become interconnected across economies. Every economy is affected by what is happening in the rest of the world and Australia is no exception to this. A lot of Australia's economic growth depends on trade. Exports directly increase the GDP and a lot of manufacturing is done by importing cheaper raw materials. Now if the world economy slows down, foreign consumers will not have the same purchasing power and they will reduce their consumption expenditure. This will reduce the demand for Australian exports and will hurt GDP in Australia. Similarly, the capital inflows in Australi will also see a downfall as investors wait for the economic outlook to improve before investing and divert their investments to the safest assets (usually the US treasury). Also, slowing world growth can lead to the appreciation of the Australian currency and further reduce exports as the Australian products become less competitive in the world markets.

Thus, for Australia to do really well, the rest of the world has to do well