Australian Economic Performance Analysis

This assignment delves into the current state of the Australian economy by examining key macroeconomic indicators. It analyzes GDP growth, inflation rates, household consumption, and unemployment figures to provide a comprehensive understanding of Australia's economic performance. The analysis draws upon data from reputable sources like The World Bank and the Reserve Bank of Australia.

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ECONOMIC GROWTH OF AUSTRALIA
By (Name)
Name of the class (course)
The Course instructor (Professor)
The Institution
The City and State location
The Date

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Introduction
Australia is a self-governing, established and culturally diverse country with a vastly
experienced labor force as well as one of the best-performing economies globally. It is the
globe’s twelfth biggest economy and a top performing country on nearly each measure of merit
in areas like health, wealth, educational attainment, and ease of doing business (Department of
Foreign Affairs and Trade, 2017). For the past twenty-five years, Australia had recorded a robust
economic progress unmarred by the recession. The sound economic policies before and during
the Global Financial Crisis (GFC) in 2008-09 played a central role in ensuring that this economy
remained unhurt by the economic downturn. Although Australia is a far-away from chief world
markets, it is well incorporated into international markets. The country’s top trading partners
include China, United States, and Japan with iron ore, precious stones and metals, minerals fuels
and oil being its top exports. The leading industries include mining, food processing, chemicals
as well as transportation and industrial equipment (Globaledge, 2017). Furthermore, Australia
has a mixed economic coordination in which the economy has an array of private freedom,
combined with government regulation and centralized planning. The country’s trade and foreign
policy uphold its security and long-term affluence. This paper evaluates the economic growth of
Australia between 2012 and 2017. Key economic indicators such as GDP growth rate and
inflation, as well as factors influencing economic growth are discussed.
Economic Growth Indicators in Australia
Annual Real GDP Growth Rate

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2012 2013 2014 2015 2016
0
0.5
1
1.5
2
2.5
3
3.5
4 3.63
2.57 2.61 2.42
2.77
Real GDP growth rate
Real GDP growth rate
%
Figure 1: Source: The World Bank
The data from graph one above shows that for the past five years, Australia has recorded
a robust economic growth. The economic expansion has been above 2 percent, and thus this
economy can be categorized under the expansion phase of the business cycle. Such a remarkable
economic growth is an indication that the government of Australia has put in place sound
economic policies and structures that are favorable for the thriving of the economy.
Real GDP Per Capita

ECONOMIC GROWTH OF AUSTRALIA 4
2012 2013 2014 2015 2016
52000.000
52500.000
53000.000
53500.000
54000.000
54500.000
55000.000
55500.000
56000.000
Australia's GDP per capita (constant 2010 US$)
Australia's GDP per capita
(constant 2010 US$)
GDP per capita (US. Dollars)
Figure 2: Source: The World Bank
Health economic growth of Australia is also supported by the rising levels of the real
GDP per capita. From 2012 to 2016, the real GDP per capita of Australia has been increasing
significantly. In 2012, the country’s real GDP per capita was 53,348.389 U.S Dollars. In 2016,
this variable rose to 55670.924 U.S Dollars (The World bank, 2017). The rising levels of real
GDP per capita denote that the living standards of Australians are increasing.
The Level of Unemployment

ECONOMIC GROWTH OF AUSTRALIA 5
2012 2013 2014 2015 2016
4.60
4.80
5.00
5.20
5.40
5.60
5.80
6.00
6.20
5.22
5.66
6.07 6.06
5.74
Unemployment rate
Unemployment rate
%
Figure 3: Source: The World Bank
The term unemployment refers to a scenario where able and willing to work persons fails
to get a job to perform at the prevailing wage rate (Gillespie, 2014, p.59). Apart from the GDP
growth rate and real GDP per capita, the level of unemployment is also another critical indicator
of a health of an economy. High level of unemployment is a sign that the economy is
deteriorating. Figures from graph three above demonstrate that unemployment in Australia is not
out of control. Between 2012 and 2016, the unemployment level in this nation has been below 6
percent (The World Bank, 2017). Though unemployment increased in 2014 and 2015, it declined
in 2016.
Factors behind Australia’s Economic Growth
Growth in Consumer Spending
The household performs an important function when it comes to providing the economy
with sufficient expenditure for generating economic growth and development. The employer or

ECONOMIC GROWTH OF AUSTRALIA 6
the companies have the responsibility of paying the individuals livable wage for the services
rendered. On the other hand, the financial organizations such as banks have the duty of lending
out money to both firms and households for spending and investment purposes. Therefore, the
critical sectors of the economy, that is, household, financial institutions, government, and firm,
have to function properly for the wellbeing of the economy (Hubbard & O'Brien, 2013, p.54). In
case the consumers cut their consumption, the economy is affected significantly. For instance,
the tax revenue declines, firms scale back their production and finally result in an economic
retard and an increase in unemployment levels.
Contribution of household spending to economic growth of Australia
2012 2013 2014 2015 2016
51
52
53
54
55
56
57
58
Household final consumption
expenditure, etc. (% of GDP)
Household final
consumption expenditure,
etc. (% of GDP)
%
Figure 4: Source: The World Bank
In the recent years, the contribution of consumer spending towards the economic growth
of Australia has been increasing steadily. In 2012, the household contribution to the Gross
Domestic Product was 53.71 percent. This figure rose to 56.56 percent in 2015 and 57.82% in
2016 (The Wolrd Bank, 2017).

ECONOMIC GROWTH OF AUSTRALIA 7
Several factors are responsible for the growing levels of consumer spending in the
Australian economy. The reduction in the cost of borrowing since the occurrence of Global
Financial Crisis (GFC) in 2008/09 is one of the critical influences of consumer expenditure. The
Reserve Bank of Australia (RBA) has been reducing the cash rate to enable Australian Banks to
lend more funds to the individuals. The current cash rate stands at 1.5 percent (RESERVE
BANK OF AUSTRALIA, 2017). The action of reducing the cash rate has made loans cheaper
and hence an increase in consumer spending and economic progress.
2012 2013 2014 2015 2016
0
0.5
1
1.5
2
2.5
3
3
2.5 2.5
2
1.5
Australia Cash rate (Dec Figures)
Australia Cash rate
%
Figure 5: Source: The Reserve Bank of Australia (RBA)
Moreover, the rise in consumer spending has resulted from a reduction in savings. The
rate of saving has been slowly sliding lower in the past few years, permitting the individuals to
increase their spending at a faster rate than the gains in the earnings. The increases in
population, as well as increase in incomes of persons, have also caused a growth in consumer
expenditure (Robinson et al., 2015, p.12).

ECONOMIC GROWTH OF AUSTRALIA 8
Figure 6: AS-AD Model
Price level
Output (Y)
The impact of consumer spending on the Australian economy is illustrated in figure six
above. The rise in household consumption causes the aggregate demand to grow. The expansion
of the total demand is exhibited by the change in the aggregate demand curve rightward from
AD0 to AD1. The change makes the real Gross Domestic Product increase, that is, change from
Y0 to Y1 and also a rise in the overall prices in the economy from P0 to P1. As the economy
grows, the employment rate will increase and further act as a boost to economic expansion.
Residential Property Boom
The investment in residential property has improved sharply in the past three to four
years. The contraction is providing support to economic progress and at the same time
addressing the undersupply of housing units in some areas. In the 2015-16 trading period, the
LRAS
P1
P0
AD 1
AD 0
Y1Y0

ECONOMIC GROWTH OF AUSTRALIA 9
investments in dwelling sector grew by 10.5% (Australian Government, 2017). This growth is
said to be the highest recorded since the early 2000s.
Figure 7: Source: The Government of Australia
After a decade of dull expansion in house construction, the real estate market encountered
a substantial increase in housing investments since 2012. A considerable portion of this
investment has been recorded in medium to high-density sector of the market.
The rise in housing investment has been driven by stronger demand for accommodation
units being experienced in the main cities of Australia such as Melbourne and Sydney. The
increase in investor activity especially from foreign countries such as China is among the factors
that are driving the demand for houses in Australian real estate market (McLaren et al., 2016,
p.40). The investors, both from Australia and international market, have been encouraged by
some of the government policies like the tax concessions on the property as well as the negative

ECONOMIC GROWTH OF AUSTRALIA 10
gearing arrangements. In fact, there are incidences of speculative demand where the investors
purchase dwellings and retain them, anticipating higher profits when the prices shoot up. This
activity has amplified the demand for houses.
Moreover, increased access to credits and reduced cost of borrowing for homes have
played a major in increasing the demand for homes. Other factors that have facilitated the
demand for dwellings incorporate the growth in population and rise in the incomes of the
Australians (Haslam McKenzie & Rowley, 2013, p.380). As a result of stronger demand for
houses, the prices of homes have increased significantly and thus an increase in the housing
investment. As more houses are being constructed, job creation has improved a situation that is
contributing to economic growth and development.
Export Earnings
The exports of Australia are significantly affected by Australia’s competitiveness in the
foreign market as well as trends in the international demand (Robinson et al., 2015, p.13). As a
result, the export incomes often fluctuate from year to year depending on the circumstances in
the foreign market. However, it should be noted that the exports contribute substantially to the
economic growth of Australia.
The mining sector has played a vital role in protecting the economy of Australia from the
impacts of harsh economic downturns encountered in the United States, Europe and other
regions in the world during after Great Depression of 2009. The booms in energy and minerals
have been essential to economic growth in Australia. Over the years, the increase in income from
the mining sector has been driven by the surge in demand energy and for raw materials particular
from India and China during their rapid economic growth periods. In 2015, mining industry

ECONOMIC GROWTH OF AUSTRALIA 11
contributed approximately 8.5% of Australia’s Gross Domestic Product and about 2% of the total
employment (The Conversation, 2015).
Figure 8: Source: The Conversation
It is clear that the iron ore still plays a major role in Australia’s exports despite
fluctuations from year to year. Also, the Liquefied Natural Gas (LNG) exports have been
expanding gradually. The earnings from this resource are expected to grow due to the
investments that are being initiated by the government. The long-term contracts Australia has
entered into with major Asian trading partners like Japan, China, and South Korea to supply gas
will cause the earning exports from the LNG to increase and thus contribute substantially to
economic progress (The Conversation, 2015).
Change in the direction of exports

ECONOMIC GROWTH OF AUSTRALIA 12
Australia’s robust economic growth has also been supported by a change in the direction
of the exports in the international market. In response to faster economic expansion in emerging
Asia, Australia has continued to shift its trade from traditional destinations like Europe and
United States towards Asia. In the recent years, exports to China have overtaken other
industrialized countries such as Japan and the United States (Australian Trade and Investment
Commission, 2017). China’s growth in demand for Australian resource exports has been driven
by its rapid urbanization and industrialization.
Figure 9: Source: Australian Trade and Investment Commission
The diversion of exports towards Asian countries like China has contributed to strong
economic growth in Australia in two ways. Foremost, rapid economic growth in Asia has
resulted in high demand for Australia’s exports particular iron ore and hence continued economic

ECONOMIC GROWTH OF AUSTRALIA 13
expansion. Furthermore, Australia has been in a position to minimize economic shocks that often
result from the United States and Europe.
Favorable Environment for Businesses
A conducive environment for businesses plays a critical role in enhancing economic
growth and development of a country (Nils Gottfries; Palgrave Macmillan., 2013, p.58).
Australia’s political firmness, appropriate governance frameworks, and transparent regulatory
arrangement provide the business community the required support for growth and prosperity.
Australia has a strong rule of law which is essential to protecting the property rights as
well as minimizing the levels of corruption in the economy. A stable political environment in this
country is important to the businesses. When a country is encountering political instabilities
characterized by civil clashes, wars, and coups, the economy suffers to a great extent. In such
environment, the property is destroyed, and investors relocate to other countries leading to a rise
in unemployment and economic downturn (Sloman et al., 2015, p.51). Therefore, the
contribution of political stability to the economic growth of Australia cannot be overlooked.
When it comes to economic freedom, Australia is ranked five global (Australian Trade
and Investment Commission, 2017). This scenario shows that Australia is providing the
multinationals and other businesses secure and a safe business environment for conducting sales.
Besides, the procedure involved in starting and operating a business in Australia has relatively
straightforward and easy. These factors are playing an important role in attracting foreign direct
investments in Australia.
Sound Economic Policies

ECONOMIC GROWTH OF AUSTRALIA 14
The government often makes use of strategies to influence the business in the country.
The selection of plans to be used in stabilizing economic growth should be considered carefully
to avoid instances of misdiagnosing the economy. In Australia, the government has established
sound regulatory frameworks and well-built economic fundamentals. The Australia’s triple-A
credit rating is one of the signals that the government has sufficient policies in place. The AAA
rating has assisted Australia considerably in reducing the costs associated with public debts. This
rating is also making it easier for Australia to obtain loans for financing various economic
projects.
Low and moderately stable inflation is also as a result of prudent economic management.
For the past five years, Australia inflation has not gone above 2.5 percent. The highest level was
recorded in 2014, that is, 2.49 percent while the lowest rate was registered in 2016, 1.28 percent
(The World Bank, 2017).
2012 2013 2014 2015 2016
0.00
0.50
1.00
1.50
2.00
2.50
Australia's Inflation rate
Australia's Inflation rate
%
Figure 10: Source: The World Bank

ECONOMIC GROWTH OF AUSTRALIA 15
Low and relatively stable inflation has contributed to economic growth of Australia in
many ways. For example, low inflation is a signal that the interest rates will be low to the
advantage of both businesses and consumers. Low cost of borrowing has enabled Australians to
increase their consumption levels. The surging demand for products such as homes partially
results from low-interest rates (Australian Trade and Investment Commission, 2017). The high
levels of consumption of provided the businesses with sufficient demand for the products.
Businesses have therefore expanded the production and are hiring more people. With low-
interest rates, the companies are in a position to secure funds for expanding their operations.
Government Initiatives of Achieving Potential Output
The government of Australia is continually putting in place several schemes intended to
spur economic growth and development. For example, the government is has been making trade
agreements with countries like Singapore and India. Such plans are vital increasing the export
earnings of the country and also improve the balance of trade (Department of Foreign Affairs
and Trade, 2017). Job creation is also another benefit of entering into trade agreements as the
Australian companies will hire more people as the demand for their products increases.
In the recent years, the government has made changes to the taxation system to encourage
investments. For instance, the government has reduced the corporate tax of small business from
28.5 percent to 27.5 percent. Furthermore, the government has since made proposals to reduce
the corporate tax for all companies from 30 % to 25 % (Australian Taxation Office, 2016). The
expansionary fiscal policies are going to play a significant role in steering the economy of
Australia to prosperity.

ECONOMIC GROWTH OF AUSTRALIA 16
In the long run, economic development is steered by influences that cause an increase in
the long run aggregate supply. If there is no an improvement in the long run aggregate supply,
then expansion in the total demand will be merely inflationary (Hubbard et al., 2016, p.67). The
government of Australia is equally working on the variables meant to accelerate the long run
aggregate supply. For instance, the government is investing to improve key infrastructures such
as roads, electricity, and ports. The investment in education, research and development will help
to improve labor productivity.
Figure 11: increase in the aggregate supply
Price level
Real GDP (Y)
Investment in infrastructure and education will result in a reduction in the cost of
production as well as improvement in labor productivity. Consequently, the aggregate supply
will increase as shown by the change in the aggregate supply curve from SRAS1 to SRAS2. This
change will cause the real Gross Domestic Product to increase and a fall in the general prices.
Conclusion
AD
SRAS 2
SRAS 1
Yp
LRAS
P1

ECONOMIC GROWTH OF AUSTRALIA 17
In the last five years, Australia’s economic growth has been remarkable. The country has
managed to maintain the annual economic growth of at least 2 percent. The real GDP per capita
is increasing which is an indication of improvement in the living standards of Australia and
economic development. Other economic variables like inflation and unemployment are also
fairing on well. Unemployment declined in 2016 and inflation has been low and relatively stable.
This economic progress has been influenced a multiple of factors. For instance, the boom in the
housing market has generated more income and employment to the Australians. Increase in
consumer consumption due to low inflation and cost of borrowing among other factors is also
contributing to economic growth. Finally, the government is continually putting measures in
place to ensure continued economic progress. Some of these plans include investment in
education and vital infrastructure and forming trade agreements with other nations to boost
export earnings.

ECONOMIC GROWTH OF AUSTRALIA 18
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