Prepare a report on the current state of the Australian economy and compare its performance with state of the economy in August 2016.
The objective of this analysis is to gain in depth understanding of the Australian economy in terms of the macroeconomic environment. The analysis will facilitate comparative study of Australian economy for the economic year of 2016 with the year 2017 (Connell 2016). The analysis will be performed with the help of the economic indicators such as economic growth (GDP) of Australia, rate of unemployment, inflation rate and in the areas of trade. The analysis will also lay down the three chief issue faced by the Australian economy consisting of new system of taxation, prevailing rate of wages in Australia and increase in the population.
GDP of Australia from 2016-2017:
The GDP of a nation can be defined as the aggregate values of the goods and service that is generated inside the territorial boundaries of a nation during a particular time, generally one economy year (Taussig 2013). GDP is usually measured with the help of present price levels (Nominal GDP) along with the real price levels, which is commonly known as Real GDP. The Australian economy enjoys a strong GDP with an average of 1343.6 billion in USD (Tradingeconomics.com 2017). A large part of this contribution is received from the constant rise in the expenditure of the consumers in Australia.
Figure 1: Figure Illustrating GDP Growth Rate of Australia from 2016 to 2017
(Source: Tradingeconomics.com 2017)
From the above stated graph, it can be defined that the economy of Australia recorded a relatively negative trend in growth in the year October 2016. However, the economy of Australia recovered from a slowing growth to report a growth of GDP by 1.1% in the first quarter of 2017 (Tradingeconomics.com 2017). Following the first quarter of 2017, the GDP growth rate of Australia marginally declined by 0.3% but subsequently gained by 0.8% in the second quarter of June 2017.
The rise in the statistics of GDP is largely contributed by the mining industry that specifically stood AUD $29393 million of the GDP during the first quarter of 2017. Another significant factor that contributed to the growth of the GDP of Australia is the increase in the consumption expenditure of the household sector (Tradingeconomics.com 2017). Findings from the report suggest that there is a rise in the spending of discretionary segments that primarily comprised in the areas of natural gas and electricity.
The reported increase in the spending of the housing sector stood 0.5% that ultimately contributed to the fall in the rate of domestic savings in Australia by 4.7%. In the current stage, investment only accounts for 0.4% of the growth (Tradingeconomics.com 2017). Besides these elements, there has been a reported instances of increase in the areas of medical and social service with reported changes in the inventory also contributing to the increase in the GDP of Australia as inventories were recorded at AUD $2069 million by the end of the first quarter of 2017.
As forecasted by the Reserve Bank of Australia, Australian economy is projected to witness a growth of approximately 3% by the end of the economic year of 2017. A large part of the growth of Australian economy is projected to be arising from the post mining flourishing conditions.
Variations in Unemployment rate from 2016 to 2017:
Unemployment can be defined as the number of individuals willing to work but are unable to find employment concerning the population of the country (Frank, Bernanke and Lui 2015). The varying dynamics of the Australian Unemployment can be analysed from the below listed graphical representations;
Figure 2: Figure Illustrating Rate of Unemployment: Australia from 2016 to 2017
(Source: Tradingeconomics.com, 2017)
Findings from the above stated graphical represents states that the economy of Australia has been performing exceptionally well in this segment. Statistical reports suggest that the rate of unemployment has decreased positively from 5.9% in the month of June 2016 to 5.6% by the end of July (Tradingeconomics.com 2017). The growth employment is largely attributed to the changes in the labour market and introductions of new types of work has contributed immensely to the fall in rate of unemployment.
In the recent years, reports suggest that there has been a large influx of part time employment in Australian economy that eventually contributed to the increase in the scope of the flexible and mobile employment search in the economy (Sloman, Norris, and Garrett 2013). In spite of the fact that the full-time employment in the economy has declined however to minimise the effect, part-time employment has managed to offset such decline by the end of the first quarter of 2017. In the current year, numerical reports have stated that 239,373new jobs have been created with large part of those figures is attributed towards the part-time employment (Tradingeconomics.com 2017). This influx of part-time employment has simultaneously reduced the rate unemployment in Australia significantly.
The policies of taxation undertaken by the Reserve Bank of Australia has increasingly contributed to the labour force participations in the present year of 2017. In spite of the fact that the rate of unemployment has declined, yet there prevails the problem of lower rate of wages. Such lower rate of wages is primarily due to the International Financial Crisis of 2007-2008 together with significant amount of migration of domestic workforces (Case, Fair and Oster 2014). Nevertheless, a comparatively lower rate of unemployment in the current year of 2017 reflects that the policies of the government are correctly implemented to a significant extent to reduce the rate of unemployment in the country.
Comparison of Inflation rate of Australia from 2016 to 2017:
Inflation can be defined as the regular increase in the prices of goods and services in an economy during a particular time that directly leads to decline in the overall purchasing power of the residents of that economy (Gregory and Smith 2016). The rate of inflation is measured by the ABS by taking account of the Consumer Price Index of a nation.
Figure 3: Figure Illustrating a Comparison of rate of inflation from 2016 to 2017
(Source: Tradingeconomics.com, 2017)
The reported rate of inflation in Australia stood 1.9% by the end of June 2017. The current rate of inflation can be considered to be considerably higher than the previous year of 2016 that stood at 1% (Tradingeconomics.com 2017). The increase in the rate of inflation can be attributed to the decline in the rate of unemployment with subsequent increase in the demand and consumer spending.
The increase in the consumer price index is primarily due to the increase in the price of the goods and service and education segment that had direct impact on the inflation (Argy and Nevile 2016). An assertion can be put forward that the standard of the living of the citizens is affected because of the rise in the inflation rate in Australia.
Balance of trade of Australia from 2016 to 2017:
The balance of trade of a nation is measured by taking in to the considerations the differences between the export and import value of the supplies (Connell 2016). The current balance of trade of Australia at the end of the first quarter of 2017 stood $888 billion. This provides an indication that there is a higher value of import and export carried out by Australia.
Figure 4: Figure representing Balance of Trade comparison from 2016 to 2017)
(Source: Tradingeconomics.com, 2017)
As evident from the above stated graphical representations it can stated that there is huge increase in the areas of both export and import. Due to such increase the balance of trade has considerably increased from 90.2% for the year July 2016 to 103.6 index points in the year July 2017 (Tradingeconomics.com 2017).
Current account: The current account comprises of the aggregate sum of the net income from the overseas net transfer (current) and the balance of trade. The sum increased stood $-15.426 million for the year 2016 June to -$9.562 for the period of June 2017. The increase is mainly attributed to the strong trade policies of the government.
Net Foreign Debt: Foreign debt can be defined as the amount, which a nation has to repay to the overseas lenders (Tradingeconomics.com 2017). The foreign debt of Australia represents a fall from $1,056,125 million to $990,599 million from the economic year of June 2016 to the year July 2017. The reduction in the foreign debt is largely because of the strong government policies towards international trade relations with other nations.
Valuation of dollar: The domestic value of Australian currency in relation to the American Dollar value helps in ascertaining the value of the currency in terms of the exchange rates. Findings from the analysis suggest that the valuation of the currency does not represents large volume of change (Tradingeconomics.com 2017). The value of currency for the year 2016 in September stood 0.75:1 against the USD, which in the subsequent year of September 2017 stood at 0.80:1. This is primarily due to the improved trade relations of Australia with other nations across the world.
Three key issue:
The projected next twelve months can lead to rise of numerous issues in the Australian economy. Few of the major issues are highlighted below;
- The adoption of the new system of taxation by the Reserve Bank of Australia is anticipated to lead an impact on the labour market, employment creation and the aggregate productive level of the Australia (Bober 2016). Several findings from the study has highlighted the issue that improper implementation of tax policies might result in increased tax burden on workforce that may deprive the workforce of higher savings. As a result of this, there might be an instances of reduced savings among the domestic households and ultimately result in negative implications on the Australian economy.
- According to the recent data it is found that the prevailing rate of wages has been considerably low with wages standing 694.90 AUD$/week. Such lower wages might introduces the instances of stagnant economy and rise in the rate of unemployment in Australia. With higher instances of unemployment, the productivity of the Australian domestic industry might fall in the projected twelve months.
- Increasing pressure of populations with rise in the medical cost are jointly anticipated to contribute in the rise of the consumer price index of Australia in the projected time (Connell 2016). Because of decreasing unemployment and increase in demand the aggregate price level is projected to rise that might result in negative impact on the Australian economy. The rising population has additionally applied increasing pressure on the prices of the houses that might create a problem of housing unaffordability in the Australian economy.
On arriving at the conclusion, the above-defined explanation has represented a significant change in the performance of the Australian economy from the year 2016 towards the conclusion of the first half of the year 2017. The Australian economy faces threat from the housing sector with rising population pressure and burden of higher prices can be regarded as the threat to the economy. On the other hand, present policies of taxation and policies of employment creation can be viewed as the positive implications on the labour market. Therefore, it can understood as having a component of economic recovery from the issues faced by Australia in the recent years. An important consideration for the Australian government to rule out the problems of inflation, lower wage rate and increased CPI is through strong monetary and fiscal policies.
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Gregory, R.G. and Smith, R.E., 2016. 15 Unemployment, Inflation and Job Creation Policies in Australia. Inflation and Unemployment: Theory, Experience and Policy Making, p.325.
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