In this video, Alistair goes through the Australian Economy and begin building an image as an example of how we might start to think about an economy.
In today's video, we're going to continue building the foundations on how the economy fits into your mind and building that picture around it. So this is part two of our video series here. Hello, and welcome
To another ACY securities market tutorial. My name is Alistair Schultz, and I'm going to be a host to today's trading journey in today's video. Like I said before, we are going to be having a look at what goes on within an economy, more targeted specifically down to one, and we're going to try and help you build that picture in your head. Naturally, there will be more work to be done and more reading to understand, but this is going to be a good starting point for you to start working your way through how economies work. The economy we are going to be looking at today is Australia. This is my native Homeland, and it is one that I know quite well. But if you are from Australia, this is probably the best place for you to start. But if it isn't, it's still a good place for you to have a look, to start building some of those understandings and formulate that picture in your mind about what the economy does.
Now, the first thing that we always want to look at when it comes to these things is the gross domestic product. Now we have our current GDP here as a normal level at $1.3 trillion. And we have our current GDP in a power parody, sort of side of things being 1.3, $6 trillion. Now to keep in mind when it comes to the triple P rating, Australia is actually above the UK, Canada, Germany, France, and on the per capita side of things. So that is something to keep in mind. And it is interesting to say the least when it comes to the amount of people living in the country and the amount of income that goes towards them. Now, the next thing to sort of really think about is what is purchasing power of parody. And why do we focus on this a little bit more than nominal GDP?
The reason behind it is it's actually an economic term for measuring the prices of goods in different countries. Now you may have heard of the big Mac index, which is a little bit of a benchmark for triple pay, and it shows the disparities in purchasing power, or it's sometimes known as Bergen omics. But regardless of that, what really goes on behind the scenes is it's the same. It's a concept of that. The good that the goods itself do not change in value. And so therefore, to give you a bit of an example, let's say a computer in America was worth $500 and that very same computer was worth $2,000 in Hong Kong. Then that indicates that the good of the good itself, the computer itself hasn't changed in value, but the value of the currency has so therefore the Hong Kong side is four times as weak as the US Dollar or vis-a-vis the other way around.
So it is just a way of measuring the goods themselves versus the power of the currency or the value of that currency. And it is something that we do keep an eye on. So triple P is one of the things that you should be looking at more than nominal GDP though. Both are very important. Now the next one to have a look at some quick, take macros here, I'm not going to go through all of these in depth. I am just giving you a bit of an idea on what we're really looking at. So for Australia by sector, we have agriculture industry and of course services. And when that sort of goes in, that's what we're building into, what makes up well GDP as a whole, the GDP growth rate is minus 6.7% as of 2020 naturally COVID-19 has effected that. And we would really have to look at what's gone on in 2019 for a better average of how that might be growing. The inflation rate from 2019 suggested 1.3 to 1.4% inflation rate. And now that sort of starts to fit in with how much we pay for goods again. And whether we, I'm gonna say an influx of day flux, regardless of the sort of situation really makes no difference. It's just about how fixed into the economy. And what's really going on around behind the scenes. The next one is the actual interest rate. So right now it's 0.2, 5% here in Australia.
It was 1% at the beginning of the year, but we
Had some emergency cuts due the COVID-19 pandemic. Now, regardless of that, go and have a look at some of these things, look them up, try and work out what's going on and try and build that picture there. Yeah, that's going to be the important part here. That's the whole concept of why we think about economies and how we actually think about when we might see changes in price. Now, the next one is who do they trade with now? Australia has got a dominant side of trading. China has 33.6% of our exports and 19.4 of our imports. So that does leave us in a little bit of a situation where it means that we are restricted or not so much restricted, but ended on one country for tray. Now there are other trading partners and you always want to sort of know who the top five or six are in Australia instance, as you can see behind me, we have China, we have the U S Japan, Germany, Thailand, and the UK for our import side and on exports.
It's much the same, except we have South Korea replacing Thailand. And we also have India replacing the UK. So we did do have a little bit of differences between what we export and what we important, who they are too. But what we really matters is how much money you're actually getting in because imports naturally ended up becoming a bit of a liability while exports are the ones that actually bring money into the economy. So the first thing to really take into account here is what does Australia really trade I've listed here, the top 10 exports and the top five imports. Now import side of things really focus around what the consumer needs on the level, the exports for us, it's actually quite interesting that we would do tend to have a mineralized sort of approach with iron ore and coal being the first two largest exports that we have with a large portion of that going to China, obviously.
And in addition to this education, education is one of the largest contributed industries to our GDP in Australia. It allows for a lot of international students to study and of which there is usually a mark-up on price because you're not a citizen, but regardless of that, there are a variety of other impacts here. When it comes from the other commodities, natural gas, we've got gold, aluminum, beef being red meat, and of course, crude petroleum, copper, and other meats such as poultry and pork. Now all of these do get exported. So if we do see something that changes a little bit here in pricing, perhaps we have an epidemic like we have right now with COVID-19 and it reduces the amount of people purchasing these products for exports. It might also mean that if we do get someone else who has a cheaper decides to enter the game with the export market as a competitor that we have issues, or the other side of this could be that someone gets left out of the game.
And all of a sudden Australia gets to fill a void such as what is going on right now with INR. So there are a variety of instances on the export side that really do contribute towards our GDP. And these are just some of the factors that we're always going to try and keep an eye on. Now, I'm hoping that this has sort of helped you be a little bit formative around your mental picture of what goes on within the Australian economy. And of course, there'll be more to come, but do please do some of your own reading, try and build that picture. It does take a little bit of understanding and working around. Unfortunately I can't, I can paint the picture as best I can, but I can't help you understand everything. So this is going to take a little bit on you, but regardless of that, I hope you have enjoyed today's video. And of course, if you want to get in contact with me, perhaps you have a question about today's video or the previous ones that I've done. Then please send me an email talktoal@acy.com. And don't forget to like, and subscribe this video so you can get more great content and more understandings about economies from me and ACY Securities in the future. Have a great trading day ahead.
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