Contradictory Happenings in the Australian Economy

This article discusses the contradictory happenings in the Australian economy, with a focus on the Reserve Bank of Australia's view on the fall in unemployment rate despite slow economic growth. It also explores the potential reasons behind this trend and the implications for the economy.

Running head: ECONOMIC PRINCIPLES
Economic Principles
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Table of Contents
Article 1......................................................................................................................................2
Article 2......................................................................................................................................4
References..................................................................................................................................6

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Article 1
RBA baffled by the 'tension' between a weak economy and strong employment
Stephen Letts
14 April 2019
ABC News
The article has emphasized on the Reserve Bank of Australia’s view regarding the
contradictory happenings in the economy of Australia. It is reported in the article that Dr.
Debelle, the Deputy Governor of RBA is confused with the fall in unemployment rate in
Australia during the period of its recent slow economic growth, which is not at all expected
as far as economic theories are concerned (ABC News 2019). This trend is now going on in
Australia for a long period and pulled down the cash rate at 1.5 percent low. It has been
argued in the article that fall in unemployment rate might have happened due to less
participation of people in the labour force.
It is quite surprising to observe that even with weak job growth; unemployment rate
fell below 5 percent and recorded as the lowest in the last eight years. According to Dr.
Debelle, the business firms in Australia had invested in the end of 2018 and continued the
investment trend in 2019 too and along with that kept on recruiting. Thus, Dr. Debelle argued
that if the economic growth had been so low why would the firms make positive investment
decisions. As per the article, Dr. Debelle seemed very much positive with the economic
growth of Australia and hoped that it will improve soon and push the wages up leading to
consumption rise (Lavoie and Stockhammer 2013). The RBA has expressed its willingness to
change their monetary policy if required; however, Dr. Debelle indicated that it might not be
needed. According to Sally Auld of JP Morgan, the contradicting scenario of Australian

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economy can be solved by rebounding of GDP growth or by matching unemployment rate
with the economic condition.
The strength of the article is that it covers a worrying issue occurring in Australia,
pointed out the key contributors, and explained the reaction of one of the most acceptable
authority in Australia. In addition to this, the recent trend of the Australian economy is
discussed to address the issues. Some solutions of the problem is also covered in the article
along with empirical examples of recovery of US has been mentioned to support the
argument of expected positive growth in Australia. However, it failed to suggest any
significant policies that RBA or Australian government would take to deal with the
contradicting issue. Dr. Debelle’s statements and arguments were not explained with enough
clarity; hence, the stand of RBA is not clear from the article (Schwarz 2014). Even though
economic growth and unemployment and wage growth are discussed but other factors such as
trade, inflation and per capita income etc. that might have gave rise to the discussed
contradicting scenario were not pointed out.
It can be summarized that the article mainly focuses on the economic growth and
unemployment rate in Australia in the recent times. It discusses the stand of the RBA
regarding the condition of low unemployment rate with low economic growth (Bishop and
Cassidy 2017). The topic discussed is of utmost importance for Australian economy but the
article however found to be as confused as the case it discussed. It is difficult to understand
how the US and China is relevant to the Australia’s situation and the discussions were not
supported with enough data so that the intensity of case is hard to understand for the readers.

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Article 2
Australia's economic slowdown could be about to get even worse
David Scutt
20 February 2019
Business Insider, Australia
The article discussed about the existing trend of economic growth in Australia and
forecast based on Westpac-MI Leading Index and RBA predictions (Frumkin 2015). As
stated in the article, RBA predicted that due to poor performance of housing market in
Australia the economy is likely to decline. The other indicators discussed in the article also
suggest the same. In January, Westpac-MI Leading Index reduced to -0.43% (Business
Insider Australia 2019). It is a clear indication of fall in economic growth that will further
aggravate the unemployment and inflation issues in Australia. RBA previously forecasted if
housing market declines further then consumption would be lower with low economic growth
and higher unemployment rate (Baah-Boateng 2013). The average GDP growth of Australia
from September 2017 to April 2018 was recorded as 0.78% and during the first half of 2018,
the GDP growth rate was 4% annually. However, in the second half of 2018 the growth rate
fell significantly. From the article, it can be said that the low economic growth, declining job
opportunities are not the effect of fall in housing prices but also due to the uncertainty in
politics and global volatility that suppressed the investment decision of firms.
The Westpac-MI Leading Index is the indicator in the article that is used to support or
predict the GDP growth of Australia and relevant factors are reliable because it is based on
leading economic indicators. The indicators used are RBA commodity prices, Yield spread,
Westpac-MI CSI expectations index, Dwelling approvals, aggregate monthly hours worked
and Westpac-MI UE index and S&P/ ASX 200 (Cusbert and Kendall 2018). All these factors

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predicted that there would be low GDP growth in Australia in 2019. It is predicted that in
2019 the economy would grow by 2.7%, which is 0.1% lower than the growth rate in 2018.
The strength of the article is that it is completely based on the findings of acceptable
and reputed organization. The indicator it discussed uses many other reliable indicators to
provide its results. The article is supported with ample amount of data such that the reader is
able to compare and understand the topic it discussed. The data it provided regarding the
indicators are well referenced. Yet there are few drawbacks in the article that are, less
emphasis on other economic factors such as inflation and unemployment. Data to support the
predictions regarding other factors have not been provided making the article less acceptable.
Thus, it can be summarized that GDP growth rate of Australia is likely to fall in 2019,
considering the key indicators. With the fall in GDP growth due to fall in housing prices there
will be additional adverse effects on unemployment and inflation. The provided data in the
article are very much relevant to the topic and suffice to indicate the trend of GDP growth; on
the other hand, it lacked data to explain the effects on other factors. Therefore, adding more
data regarding other factors and more discussion on them would have made the article
clearer.

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References
ABC News 2019. RBA baffled by the tension between a weak economy and strong
employment. [online] ABC News. Available at:
https://www.abc.net.au/news/2019-04-14/rba-confused-by-gdp-and-jobs-data/11000178
[Accessed 28 May 2019].
Business Insider Australia 2019. Australia's economic slowdown could be about to get even
worse. [online] Business Insider Australia. Available at:
https://www.businessinsider.com.au/australia-economy-gdp-growth-rba-cash-rate-2019-2
[Accessed 28 May 2019].
Lavoie, M. and Stockhammer, E., 2013. Wage-led growth: Concept, theories and policies.
In Wage-led growth (pp. 13-39). Palgrave Macmillan, London.
Schwarz, F., 2014. How weak and how definite are weak definites. Weak referentiality,
pp.213-235.
Bishop, J. and Cassidy, N., 2017. Insights into low wage growth in Australia. RBA Bulletin,
March, pp.13-20.
Frumkin, N., 2015. Guide to economic indicators. Routledge.
Baah‐Boateng, W., 2013. Determinants of unemployment in Ghana. African Development
Review, 25(4), pp.385-399.
Cusbert, T. and Kendall, E., 2018. Meet MARTIN, the RBA's New Macroeconomic
Model. RBA Bulletin.

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