Economic Growth of Australia: Analysis of Last Five Years

The essay summaries growth performance of Australia over the last five years. The Australian economy is currently recording below average growth rate. Transition in China’s economic growth, decline in export and contraction of housing industry cause a shrink of economic activity. Unemployment rate declined overtime. The increase in employment however is observed mostly in part time jobs. For rate of inflation, after remaining considerable stable for a long period inflation has increased slightly in the ongoing year mainly due to an increase economic prices of fuel, tobacco and electricity.

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Introduction
Gross Domestic Product of a country is taken as a representative measure for estimating
total market value of the economy’s produced goods and services computed in a certain
accounting period. GDP does not account for depreciation cost of plants and other capital
equipment. This is why it is called a gross national estimate. In national income estimation, GDP
is reported in two common ways. One is computed GDP reported based on current year prices.
GDP recorded in real terms in known as chain volume measures. The chain volume measure of
GDP is actually GDP estimates at constant base year price (aph.gov.au 2018). That is this
measures value of national output after eliminating the impact of inflation and thus reflect a more
prominent measure of national aggregate.
The essay evaluates economic growth of Australia covering the period of last five years.
The essay not only considers economic growth of Australia but also discusses other economic
indicators such as unemployment, inflation, export and import, foreign direct investment,
resilient nature of the economy and most importantly role of monetary and fiscal policy in
promoting economic growth of Australia.
Gross Domestic Product
In Australia, Australian Bureau of Statistics published the data on Australian GDP at
quarterly interval. The data are published nearly around two months succeeding the quarter of
reference year. ABS computes GDP by using three different measures depending on production,
income and expenditure. Average of the three estimates are taken as a reliable measure for
representing final output (rba.gov.au 2013). This is because the average estimates offset errors in
each of the three measures.

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Analysis of economic growth
Rate of economy’s growth is computed by estimating percentage change in the real GDP
between two consecutive years. In case of Australia, the percentage change in trend volume
measure captures economic growth of the nation (Hartwell 2017). The figure below produces
trend GDP growth in Australia over the last five years.
2013 2014 2015 2016 2017
2.0
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
2.6 2.6
2.4
2.8
2.0
GDP growth
GDP growth
Year
Growth rate
Figure 1: trend economic growth in last five years
(Source:.abs.gov.au 2018)
Australia’s economy grew at a rate of 2.6 percent in 2013. The accounted growth rate is
lower than the long-term growth trend of above 3 percent. The economic growth rate however
was stronger than that expected by Reserve Bank of Australia and Economists’ forecast. The
growth rate was slower compared to recorded growth in the December quarter. Main growth
contributing factors during that time were consumption expenditure, investment spending by
government and business inventories and growth of export. In response to a relatively slower

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growth rate, the Reserve Bank kept the cash rate fixed at the all-time lower level of 2.5 percent.
There was not much change in economic scenario in 2014, as growth rate remained same as 2.6
percent.
Economic growth however declined by 0.2 percentage point to 2.4 percent in 2015.
Nominal GDP during this time recorded the weakest ever growth rate of 1.8 percent during this
year. The economy in the past showed considerable resilience in response to global shocks. One
factor that caused tension in the economy in this time was a volatile global commodity prices
resulted in a considerable decline in nation’s terms of trade (Reid and Coiacetto 2017). Another
factor contributed to economic contraction was complicated economic phase of China. In the last
five years of growth experience, economic growth recovered only recorded an increase in the
year 2016. The rate of economic growth increased to 2.8 percent during this year. The accounted
growth rate was highest since the third quarter of 2012. The ABS report identified final
consumption expenditure by household and growth of export (Scutt 2016). The contribution of
export in economic growth was 1 percent while that of household consumption contributes 0.4
percentage points. Beside these two factors, consumption expenditure made by government and
private investment were regarded as contributing factors of economic growth.
Economic growth again lowered to 2.0 percent in 2017. The economic growth failed to
match the market expectation (abc.net.au 2018). Main factors dragging the economic growth
include decline in net export especially in tourism and rural goods, contraction in residential
construction, steep fall in construction and large-scale engineering.

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Level of unemployment
Figure 2: Unemployment rate in Australia
(Source: tradingeconomics.com 2018)
As reflected from the above figure, there is an overtime decline in the recorded
unemployment rate. Unemployment rate represented in seasonally adjusted measure documented
as 5.3% in the August quarter of 2018. Number of person unemployed has increased due to the
increase job seekers for part time jobs and that of a decrease in job seekers for part time jobs.
Employment increases significantly contributing to an increase in labor force participation.

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Rate of export and import
Figure 3: Export of Australia
(Source: tradingeconomics.com 2018)
Australia’s export lowered by 1 percent to become AUD 36.0 billion the second quarter
of 2018. Export of non-rural goods especially that of mineral and metal ores declined
significantly. Export of rural goods particularly that of cereal grains declined
(tradingeconomics.com 2018). As against a drop in rate of goods export, the rate of service
export remained almost at the same level.
Figure 4: Import of Australia

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(Source: tradingeconomics.com 2018)
The volume of imported gods remained almost unchanged in the second quarter of 2018.
Import of intermediate and merchandise imports increased by 6 percent with main drivers being
fuels and lubricants. Service import on the other increased by only 1 percent with primary
service being transport, travel and other services.
Inflation rate
Figure 5: Inflation rate in Australia
(Source: tradingeconomics.com 2018)
In the last five years, inflation in Australia mostly constituted a downward trend.
However, in the second quarter of 2018, inflation slightly increased to 2.1 percent compared to
1.9 percent in the previous period. The recorded inflation rate is lower than market expected rate
of 2.2 percent. The last recorded inflation rate is the highest since first quarter of 2017
(aph.gov.au 2018). Increase in price level is mainly due to an increased price of tobacco, fuel and
electricity.
Level of foreign investment

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The net international liability position of Australia stood at $8986.2 billion as of
December 2017 recording an increase by $8.7 billion compared to the previous year. Australia’s
foreign investment increased to $3266.4 billion at the end of the year of 2017 marking a 3%
increase. In Australia, portfolio investment accounted to be $1769.6 billion, direct investment
recorded to be $849.1 billion, other form of investment and financial investment recorded to be
$494.8b and $153.0b respectively (Rogers, Lee and Yan 2017). Major investors in Australia are
USA, UK, Belgium, Hong Kong, Singapore and Japan.
Figure 6: Foreign investment in Australia
(Source: abs.gov.au 2018)
Nature of assets in Australia
Housing market in Australia is considered as one of the top performing assets of the
world. Several factors lead to gain in housing price of Australia. Factors affecting assets price in
housing include population growth, level of indebtedness, mortgage rate, level of household
income, tax and other policies of social security and supply. Population growth and indebtedness

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are the two significant factors influencing housing asset in Australia. Indebtedness has been
fueled by the declining interest rate.
Shares of Australia is the fifth best performing assets in world (Collett 2018). The long-
term investment report of ASX confirms that in the past few years, residential property market
assets are the top performing asset of Australia.
Reasons for no recession in Australia
It is since the last twenty-five years that Australia had a recession. This however does not
mean that unemployment rate in the economy had not fluctuate at all. Rate of unemployment
experienced an increase in the respective years of 1996, 2001, 2009 and that of 2013; the fact is
that growing unemployment yet not caused recession in the economy as the economy
immediately got back to the stable position (Koo 2014).
Economic growth of China had a significant role in non-interrupted economic growth of
Australia. Australia gained considerable benefit from the new innovative growth model of China
relied on digging out resources from underground and sold to economically developed nations.
More than 32 percent export from Australia went to China consisting mostly raw materials.
However, export of Australia declined slightly during 2009. In recent years, China however
experienced an economic contraction. The mining sector contracted is significantly since 2012
aggravating the unemployment problem. Still the economy has been kept protected from any
economic recession (washingtonpost.com 2018). This is because of the ability of Australia to cut
the interest rate whenever it is necessary. The other countries do not possess such adjustment
capacity as the interest rate is already settle at a low level that might go to zero or even negative.
Australia however is in an advantageous position because of the smarter Central bank.

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Role of fiscal and monetary policy in economic growth of Australia
In determination of economic growth, macroeconomic policy tools play an important
role. The most commonly discussed macroeconomic policy tools include fiscal and monetary
policy. Design of these policies and proper execution help in achieving sustainable and stable
economic growth.
Fiscal policy
Fiscal policy works through changes in composition and level of government spending,
alteration in types and rates of taxes and borrowing of government. Government has the power
to affect domestic economic activities directly through capital and recurrent expenditure. Change
in expenditure, transfer payment and taxes have indirect influence economic activities.
Government also takes discretionary policy action to protect the economy from internal
and external instability. Stimulatory fiscal package constitutes an example of discretionary fiscal
policy (Argy and Nevile 2016). Automatic stabilizers reflect types of expenditures that are
relatively less responsive to economic activity. These have a stabilizing influence on aggregate
demand and work without need of specific government action.
In Australia, fiscal policy is conducted following Charter of Budget Honesty Act 1998.
This imposes a basic requirement for Australian government to design and report to a medium
terms fiscal strategy. The framework of medium term fiscal strategy follows the principles of a
sound management of fiscal position including government debt and management of fiscal risk,
state of economic stability, national saving, integrity and stability of the tax base and balance
across generations (aph.gov.au 2018). Government medium term focus influence of either
automatic stabilizers or discretionary policies.

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Monetary policy
The Reserve Bank of Australia has the responsibility to design monetary policy for the
economy. RBA implements monetary policy action through changing cash rate. In the money
market cash rate is determined by the demand and supply of overnight funds. RBA by changing
cash rate influences interest rate in the financial system. Change in cash rate affects domestic
economic activity by influencing savings and investment, expenditure by household, credit
supply, exchange rate and prices of assets.
Monetary policy is set by RBA with the aim to achieve selected policy targets following
Reserve Bank Act in 1959. The objective include stability in currency, promotion of full
employment, welfare and economic prosperity (Bell 2017). RBA targets to maintain an inflation
ranged from 2 to 3 percent. Target of RBA for a stable and low inflation in turn achieves a stable
and strong growth for Australian economy.
Conclusion
The essay summaries growth performance of Australia over the last five years. The
Australian economy is currently recording below average growth rate. Transition in China’s
economic growth, decline in export and contraction of housing industry cause a shrink of
economic activity. Unemployment rate declined overtime. The increase in employment however
is observed mostly in part time jobs. For rate of inflation, after remaining considerable stable for
a long period inflation has increased slightly in the ongoing year mainly due to an increase
economic prices of fuel, tobacco and electricity. Export of both rural and non-rural goods
declined while service export remains unchanged. On the other hand, Australia records an
increase in both goods and service imports. Level of foreign investment in recent year increased

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compared to the previous year. Foreign invest channel in the form of direct investment, portfolio
investment, financial derivative and others. Property market share are considered as the most
highly yielding shares of Australia in last few years. Both fiscal and monetary policy are at play
for securing a sustainable growth for the economy.

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References
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