It is imperative to note that factors in the international community play a significant role in the economy of Australia. Although the global macroeconomic conditions appear to be improving, sustained geopolitical risks accompanied by policy volatility has created uncertainty in the country’s economy. More precisely, the continued policy uncertainty between Australia and the United States, Europe and the United Kingdom has extensively affected the macroeconomic conditions in the country. More precisely, the recent presidency of Donald Trump, the Brexit and the inconclusive G20 meetings has had significant effects on the level of consumption in the country.
By and large, the election of Donald Trump created uncertainties about the future direction of the country’s trade policy. For instance, the Trump administration has seen the extraction of the US from the Trans-Pacific Partnership (Vidot, 2017). In addition, it has summoned for the renegotiation of the North American Free Trade Agreement (Vidot, 2017). It is worth noting that these decisions have led to an increase in trade barriers between Australia, the US and the rest of the world and, thus, have adversely affected its economic performance. Consequently, this has reduced the level of consumption in the country, characterized by the contraction of the GDP at the beginning of the year.
Graph showing annual GDP of Australia
Source: (Trading Economics, 2017).
In the same way, it is worth pointing out that Brexit has created significant uncertainties in the Australian economy. Immediately after the exit of the UK from the European Union (EU), the nation experienced a short period of volatility in its financial markets (Huang and Black, 2016). Primarily, this period of uncertainty was characterized by drops in share prices and falls in Australian bond yields. In addition, the country’s currency depreciated (The Conversation, 2016). Markedly, this negatively affected the Australian economy (Hutchens, 2016). More precisely, the depreciation of the Australian currency has made imports more expensive. In turn, this has led to a reduction in the consumption of imports from other countries. On top of this, the sudden fall in share prices and bond yields created fear and uncertainty among the Australian people, thereby forcing them to reduce their spending to conserve their wealth. Consequently, their consumption level reduced significantly.
Graph showing effects of Brexit on Bond yields
Source: (Financial Times, 2017).
ccording to the Department of Foreign Affairs and Trade (2017), Australia places a high importance on the G20 as a primary forum for worldwide economic integration. However, recently, the G20 meetings have been marred by a series of inconclusive conventions. In turn, it has adversely affected the Australian economy which largely depends on its decisions for sustainability and growth (Financial Times, 2017). More specifically, the level of consumption in the country has reduced significantly following uncertainties in the global economy. Households and businesses are consuming less in preparation for harsh economic times (Department of Foreign Affairs and Trade, 2017). Consequently, the low level of consumption has led to the contraction in the country’s GDP.
Graph showing GDP of Australia
Source: (Trading Economics, 2017).
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