Australian Economy 2016- 2017 Report

State of
the
Australi
an
Econom
y
2016- 2017
2016- 2017
The Australian Economy witnessed a sort of comeback in
the period between August 2016 and September 2017
led by the resurgence of commodity prices in the
international market and strong domestic demand. This
strong growth is expected to continue in the next twelve
months with a few concerns but an overall positive
outlook.

1. Introduction
August 2016 was a time when the Australian economy was witnessing a drag in the
GDP growth due to a slowdown in the global commodity market. This changed
considerably during the period of August 2016 and September 2017 as the
economy experienced a come back from the lows of the previous quarters that were
largely caused due to the end of a commodity super cycle. (Organization for
Economic Co-operation and Development, 2017) The economy of Australia has seen
stability in the period since August 2016, partly due to the end of the decline in
commodity market and partly due to high domestic consumption.
2. The Current State of Australian Economy
2.1 Gross Domestic Product
The GDP growth declined between November 2016 - February 2017 due to a decrease in the
decline in construction activities and disruptions in coal supply owing to bad weather. (Reserve
Bank of Australia, 2017). However, the growth rate picked up sharply.
Table 1 Australia’s Nominal Gross Domestic Product . Source (Reserve Bank of Australia,
2017)
Year
Nominal GDP
(in Million $)
Year on Year Real
GDP Growth Rate
Jun-16 420254 3.2
Sep-16 418441 1.9
Dec-16 423034 2.4
Mar-17 424450 1.8
Jun-17 427948 1.8
The end of the boom in the commodity market has led to an imbalanced GDP growth. States like
Queensland and Western Australia where the resources sector has a greater contribution to
output have experienced a slower growth. States where non mining economy is proportionately

stronger have experienced better growth since non mining investment has remained high. Non
mining investment remained high in the states of Victoria and New South Wales. (Australian
Bureau of Statistics, 2017) (Reserve Bank of Australia, 2017)
However, in spite of the decline in mining investment the GDP growth has not slowed down and
a reason for this could be domestic consumption. The low rates of interest, and household
perceptions of their finances helped the sales in the retail sector to remain high. (Reserve Bank
of Australia, 2017) (Organization for Economic Co-operation and Development,
2017)
Table 2: Australia GDP Growth and GDP Growth Forecasts . Source Reserve Bank of
Australia (2016)
Year-ended
Dec 2016 Jun 2017 Dec 2017 Jun 2018 Dec 2018
GDP growth 2½–3½ 2½–3½ 2½–3½ 2½–3½ 3–4
CPI inflation 1½ 1½–2½ 1½–2½ 1½–2½ 1½–2½
Underlying inflation 1½ 1½–2½ 1½–2½ 1½–2½ 1½–2½
2016 2016/17 2017 2017/18 2018
GDP growth 2½–3½ 2½–3½ 2½–3½ 2½–3½ 2½–3½
2.2 Inflation
The Reserve Bank of Australia sets an inflation target between 2-3 % (Reserve Bank of
Australia, 2017) and the inflation remained within target throughout the year.

Jun-16 Sep-16 Dec-16 Mar-17 Jun-17
0
0.5
1
1.5
2
2.5
Chart Title
Year Ended Inflation
Change
Graph 1 The Change in Inflation (CPI) Rate of Australia (Year-on -Year) (Reserve Bank of
Australia, 2017)
A common trend throughout the year has been the increase of inflation in non tradeable goods
and a deflation of prices in tradeable goods. An increase in non-tradeable items implies greater
domestic demand or a higher consumer spending. The non-tradeable inflation represents
consumption of services such as hospital services, alcohol, tobacco etc.
A decrease in inflation of tradeable goods (goods that are generally exported) may signify
volatility in trade, and an appreciation in the trade weighted index.
130
135
140
145
Australian dollar trade-
weighted exchange rate
index Australian dollar
trade-weighted
exchange rate
index, adjusted
for relative
consumer price
levels
Graph 2 Trade weighted Exchange Rate Index Source : Reserve Bank of Australia, 2017