Report on the Australian Economy

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1882 words
University of Richmond
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The purpose of this report is to discuss the Australian economy at present state and describe the foreseeable future of the countrys economy for the next six months.  It describes the current economic status use the main indicators that are used by the macroeconomic model.  These indicators are the Gross Domestic Product (GDP), unemployment rates and fiscal policy. For the change of cash rate, it will be argued that RBA may attempt to increase owing to the growth of supply and price for house and grow in rate of future price for financial market, or decreased cash rate since lower inflation rate and higher unemployed rate. As a result, this report making a summary of cash rate which will lower than now.


Over the last one year, there have been a few decisions that were made in Australia and other global superpowers that have affected the economy of Australia. This includes the election of President Donald Trump whose governance has seen several changes in economic policies globally. It is also evident in the Brexit referendum by the Britons to pull out of the European Unions. This has greatly affected major world economies. The macro economic indicator is the key measure that is used to measure the current state of the economy of a particular country. It can also be used to give an insight into the future of the economy. The main economic indicators used to measure the economy of a country are unemployment rate, real GDP, inflation and the fiscal policies that have been put in place. The paper below analyzes the current state of the Australian economy and predicts the future of the economic state for the coming six months.

Monetary Policy and Inflation

In Australia, The Reserve Bank is in charge of planning and executing fiscal policies (Rushdi et al., 2012, p.43). Its principal targets are the stabilization of money, economic growth, and welfare of the people and the maintenance of full employment. The real indicator used for monetary policy outline is inflation. It can be characterized as the general upward value development of products in an economy ordinarily as measured by the consumer price index and producer price index. As the cost of the goods and services increases the purchasing power of the buyers decreases which may bring about inflation. The rate of inflation varies now and again. In the course of the last 50 years, the rate of inflation has been significantly fluctuating ranging from 0 - 20 rate. Despite the fact that Australia endeavor to keep up a particular rate of inflation which is 2 - 3 % rate, however, can shift contingent upon conditions (Melvin and Norrbin, 2017, p.3). As sustenance cost raised Australia's inflation rate grabbed, adding to likely hood of a rated climb. According to the bureau of statistics, the final quarter of the past 3 months the consumer price index went up by 0.5%.Inflation lying on an annual rate rose by 2.1%. Australian Bureau of Statistics Said that fruit price index hopped 15.9 % for the first quarter of the year; there is inflation in household travel and accommodation by 6.6 percent (Bonoli, 2017, p.5). The figures distributed for this present month demonstrates that the certainty is surging in the midst of the greatest employing blast in over three years, piling pressure on inflation, which the bank expects to keep between 2% and 3% percent. It is expected to remain constant for the next 6 months (Wilkins et al., 2016, p.16).


Figure 1: Australia inflation rate Source: Australian Bureau of Statistics (2017)

The chart above illustrates the inflation rate in Australia over the last three years from July 2014 to July 2017. This shows the rate of inflation has been unstable over the period. This suggests that the rate of inflation is expected to increase with an undetermined rate over the next six months.

Fiscal policy

The fiscal policy is the strength that is used by the government policies and its affects to the economy of a country by making adjustments in the budget of a country. The adjustments that are made to the budget include the payment of welfares, adjustments in tax and government expenditure. This describes the possible outcomes of the changes in the budget to the economic activities. The monetary policy of Australia ensures there is price stability in the market; there are positive economic growth and full employment of Australian citizens (Fazzari et al., 2015, p.289). The policy ensures it regulates the flow of money and the income that can be disposed from circulation by the consumers. The effect of this action on the income distribution, resource management, level of economic activity and the market demand.


Figure 2: A fiscal-stimulus scenario Source: Source: QIC, Australian Treasury (2017)

The figure above illustrates the impact of the fiscal policy in Australia to the budget deficit. It shows that the deficit has been on a constant growth rate since the 2014-15 budget deficit. This suggests that the deficit is expected to grow over the next six months.

Gross Domestic Product

The Gross Domestic Product is the market valuation of all final products that are produced within a countries boundaries. The Gross Domestic Product of a country can be classified into four different components which are consumption, investment, net exports and government purchases (Cumming and Johan, 2016, p.25). These components are valued at the market price and the total value of the goods when consolidated. The GDP can found by using the following method:

GDP = Consumption + Investment + Government Spending + Net export.

GDP can be calculated using three main methods. They include the expenditure approach which calculates the total amount spent on products, the product approach that calculates the market value of products produced within a country. The third method is the income approach that calculates the total of all income earned from products produced within the country (Kubiszewski et al., 2013, pp.57).


Figure 3: Australia and its GDP Source: Australia Business Insider (2016)

The chart above shows the GDP of Australia from 2006 to the present. This illustrates a steady growth for the last two years. This suggests that the GDP is expected to grow over the next six months.

Gross domestic product is thought to be outstanding amongst other monetary pointers that mirror the substance of the economy. It's one among the broadly acknowledged financial pointers all through the world. An ascent in GDP mirrors that there is development in that specific economy. There has been an expansion in 0.9% in the Australian GDP in the last quarter. The present Australian GDP is at net 1015 billion dollars. In contrast with the world economy, it is 1.64% of the world economy (Ward et al., 2017, p.e0164733.). The significant supporters of the Australian economy are the service sector followed by the agricultural industry and then the agricultural sector. The accessibility of plentiful natural resources is an additionally preferred standpoint which makes the economy more competitive. If there is a neglect on the Australian economy it could be seen that Australia was in a position to maintain a steady growth in the period over 2012 to 2015, where we see a negative development index of 0.9%. Based on the observation, we to see that Australia was in a position to keep up unfaltering financial development.

The negative growth recorded in the quarter finished January 2009 was out of retreat which is a marvel that emerges out of the fall in the general yield levels. In the time recently 2008 and mid-2009 we saw that the world economy was moving into subsidence because of fall in the general yield levels. A considerable lot of the real world economies were vigorously hit by the retreat, and particularly the United States took after by different economies moving into the recession (Frankel and Saravelos, 2012, p.216). It began with the subprime emergency that emerged because of over the top loaning, in the United States. A significant number of the saving money majors like the Lehman siblings which had its history dated back to mid nineteenth century needed to close down because of overwhelming misfortunes. This sort of extreme loaning in the US made numerous issues as the truth part was shooting up finished a consistent timeframe. In the underlying stages, it was thought to be great, however, later on, it was hard to understand that the outcomes were appalling. The inordinate loaning process brought about over the money circulation in excess within the economy, this brought about inflation subsequently the Federal Reserve increment the financing cost which made the borrowings more costly (Richards and Authority, 2016, p.7). As an impact of making the borrowings more costly, it made the shoppers being placed into a circumstance where their bills being more costly.


Figure 4: House hold debt for Australia Source: International Monetary Fund (2017)

Figure above illustrates the house hold GDP for Australia has been on the rise for the past few years since 2012. There has been a steady growth and this shows a constant growth in the economy. This suggests that the house hold GDP will continue to grow steadily for the next six months.


Figure 5: Australia GDP Annual Growth Rate Source: Australian Bureau of Statistics

The bar graph above shows the biannual growth rate of the Australian GDP growth rate for the last three years from July 2014 to January 2017. The GDP grew by a rate of 1.7 and it is expected to grow more for the second part of the year. Tis suggests and increased growth rate in the GDP.

In specific cases, the result on the bills was more than their net income. This brought about bankruptcy in huge numbers. The inordinate borrowings made by the customers were utilized as interest in the reality area, this made the lodging costs in the US shooting up, and this went to a harness when the borrowings were made costly which thus brought about an adjustment in a situation from abundance request over supply to overabundance supply over the request. The impact of this was seen worldwide, and the effect of this was even found in Australia where the housing prices dunked in late 2008 and mid-2009 (Erkens et al., 2012, p.389). This was the purpose behind the fall in output levels in the quarter January 2009 in Australia. As this was an overall Marvel Australia was additionally influenced, yet the reality to be noted is that the effect in Australia was not as awful in contrast with the United States and Europe.


In Macro Economics an exemplary model expresses that economy is dependable at full work. Joblessness, if saw at any stage, is viewed as simply frictional, numerous conceivable reasons can come about for business like laborers exchanging employments regularly. Since there is no component of joblessness in the model so no connection can be found in Labor Market and conduct of wages (Milner et al., 2013, p. 237). As wages are just controlled by the profitability of an item and effect of estimating however in no way, shape or form joblessness has no part to play.


Figure 6: Unemployment rate in Australia Source: Business Insider

The Figure above illustrates the unemployment rate in Australia from March 2012 till March 2017. It shows there has been an increase in the unemployment rate over the years. This suggests that the unemployment rate will continue to grow over the next six months.


Figure 7: Bi annual unemployment rate in Australia Source: Australian Bureau of Statistics.

The bar graph above shows the bi annual unemployment rate of Australia over the l...

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