Economic Principles and Decision Making

Running head: ECONOMIC PRINCIPLES AND DECISION MAKING
Economic Principles and Decision Making
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ECONOMIC PRINCIPLES AND DECISION MAKING1
Table of Contents
Introduction................................................................................................................................2
Current state of Australian economy..........................................................................................3
Factors explaining slow economic growth in Australia.............................................................5
Slowdown in housing market.................................................................................................5
Economic slowdown of China...............................................................................................7
Fall in household consumption..............................................................................................8
Decline in wage growth.........................................................................................................9
Growth expectation and design of monetary policy................................................................10
Conclusion................................................................................................................................12
References................................................................................................................................13

ECONOMIC PRINCIPLES AND DECISION MAKING2
Introduction
Economic performance of Australia in 2018 can be divided into two part. In the first
half of 2018, the economy accounted an annual growth of 3.8 percent. Economic growth rate
for the first six months was above the average growth rate of 3 percent. Strong economic
performance during this time was contributed from a steady performance of household sector
and growth of net export. There was however a break in the economic performance of
Australia in the second half of 2018 (Rumbens & Guttmann, 2019) Rate of economic growth
started to decline since the third quarter of 2018. The economy accounted slowest ever
growth rate since 2008.
There are various factors that explain the relatively slow growth rate of Australia.
Both global and domestic factors are responsible for this. As Australia’s economy and
financial market are highly influenced by global economic environment, economic turmoil in
the global economy affects the economic performance of Australia. Global economy
accounted a steady economic performance throughout 2017 and in the first half of 2018.
However, since the second half of 2018 as global economy started to slow down, economic
growth of Australia also recorded a break. Of the domestic factors contributing to a slower
economic growth is the loss in momentum of the housing market especially in Sydney and
Melbourne.
One primary objective of Reserve Bank of Australia is to ensure a steady economic
performance through adjusting cash rate. In response to current slowdown of Australian
economy, the bank is leaning to lower the cash rate from the current level of 1.5 percent. Two
widely discussed factor causing Australia’s economic growth to fall below the average rate
are slow growth of housing market and economic slowdown in China. The report is prepared

ECONOMIC PRINCIPLES AND DECISION MAKING3
to present findings related to slow economic growth and factors responsible behind the
economic slowdown
Current state of Australian economy
The economy of Australia in the second half of 2018 accounted a growth rate that is
weaker than the expected growth rate. Some weaknesses of the economy were temporary.
These include interruption in the flow of export and impact of drought in the economy.
However, the main reasons for weaker economic growth is the relatively slower growth of
consumption than that recorded in earlier period (Madsen, 2015). Consumption growth
though started to slowdown since the beginning of 2018, however in the latter half of the year
consumption growth fell below than the anticipated rate.
Figure 1: GDP and employment growth in Australia
(Source: Debelle, 2019)