Australian Economy Analysis

This assignment requires a comprehensive analysis of the Australian economy. Students need to research and evaluate various economic indicators such as GDP growth, exports, and household consumption expenditure. The analysis should also delve into the performance of the housing market, examining factors like time on the market and price changes. Additionally, students are expected to discuss the influence of policies, such as income tax cuts, on the overall economy and interest rate trends.

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

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Table of Contents
1.0. Introduction.....................................................................................................................................3
1.1. Brief overview of Australia.........................................................................................................3
1.2. Real Gross Domestic Product......................................................................................................3
1.3. Real GDP Growth Rate................................................................................................................4
2.0. Australia’s Economic Growth..........................................................................................................4
2.1. Sources of Economic Growth Rate in Australia...........................................................................5
2.1.1. Growth in exports................................................................................................................5
2.1.1.1. Export composition 2015-2016 financial years............................................................6
2.1.1.2. Strong Performance of Visitor Economy Exports........................................................6
2.1.1.3. Export of Minerals........................................................................................................7
2.1.2. Housing Boom.....................................................................................................................9
2.1.3. Rise in Household Consumption........................................................................................10
2.1.4. Low and Relatively Stable Inflation...................................................................................12
2.2. Obstacles to Australian Economic Progress...............................................................................14
2.2.1. Slow Wage Growth............................................................................................................14
2.2.2. Business Investments are falling........................................................................................14
2.2.3. Lagging Business Confidence.............................................................................................16
2.3. Government Plans to Boost Economic Growth and Development.............................................16
2.3.1. Reduction of Taxes............................................................................................................17
2.3.2. Improving Tourism Industry..............................................................................................17
2.3.3. Infrastructure Development...............................................................................................18
2.3.4. Enhancing Education and Training....................................................................................19
Conclusion.................................................................................................................................................19
Bibliography..............................................................................................................................................21

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1.0. Introduction
1.1. Brief overview of Australia
Australia has experienced a remarkable economic growth untouched by the recession
since 1991. This country has an open economy characterized by minimal restrictions on goods
and services from the international market. Australia’s diverse and plenteous natural resources
have attracted high number of foreign direct investments. This country is a net exporter of food,
energy and other natural resources like iron ore. The services are essential to economic progress
as they contribute approximately 75% of the employment and 70% of the Gross Domestic
Product (Central Intelligence Agency, 2017). The government of this country allows
considerable autonomy in the economy and thus Australia is ranked fifth when it comes to
economic freedom. Moreover, Australia undertakes a crucial role in the G-20, Pacific Economic
Cooperation (APEC), World Trade Organization (WTO), and other trade agreements. The top
trading partners of this economy incorporate China, Japan, South Korea, United States and India
(Globaledge, 2017). Therefore, this report assesses economic growth in Australia from 2012 to
2017. The paper analyzes trends in the real GDP growth rate, factors causing economic growth,
headwinds to economic progress and government measures to attain potential Gross Domestic
Product.
1.2. Real Gross Domestic Product
Real Gross Domestic Product refers to an economic instrument that appraises the
inflation-adjusted market prices of the overall goods and services manufactured in an economy
during a particular period. This measure avails a broad estimation of economic expansion, and it
is also an important gauge of the health of an economy (Arnold, 2013, p.65). Therefore, the

AUSTRALIA’S ECONOMIC GROWTH 4
government and other policymakers make use of the real GDP to determine if an economy needs
a boost or restraint.
1.3. Real GDP Growth Rate
Real GDP growth rate entails the annual percentage variations in the real Gross Domestic
Product. By assessing the real GDP growth rate, we can tell if an economy is contracting or
expanding. Furthermore, the investors usually make use of this measure to make adjustments in
their investment portfolios (Boyes & Melvin, 2012, p.72). Those economies with high GDP
growth rate are known to attract a large number of investors for their corporate bonds and stocks.
2.0. Australia’s Economic Growth
Graph 1: Real GDP growth rate (2012-2016)
2012 2013 2014 2015 2016
0
0.5
1
1.5
2
2.5
3
3.5
4
Australia's Real GDP growth rate
Australia's Real GDP
growth rate
%
Source: The World Bank
In the last five years, Australia has recorded remarkable annual economic growth rates.
Between 2012 and 2016, the country’s economic growth has been above 2% which is a sign of a

AUSTRALIA’S ECONOMIC GROWTH 5
healthy economy. However, it is evident that the economic expansion registered in 2012 was
higher than that of the four successive years. In 2012, the country’s economic growth rate was
3.63% while in 2016 the growth rate stood at 2.77% (The World Bank, 2017).
2.1. Sources of Economic Growth Rate in Australia
2.1.1. Growth in exports
2012 2013 2014 2015 2016
0
1
2
3
4
5
6
7
Exports of goods and services
(annual % growth)
Exports of goods and
services (annual % growth)
%
Graph 2: Source - The World Bank
Australia’s exports to the international market contribute significantly to the economic
progress of the country. Data from the chart two above shows that the exports of Australia have
been growing steadily in last five years. In 2016, the annual expansion in Australia’s exports was
6.67 % compared to 5% recorded in 2012 (The World Bank, 2017). The rise in export earnings
has helped Australia to maintain a healthy economic development.

AUSTRALIA’S ECONOMIC GROWTH 6
2.1.1.1. Export composition 2015-2016 financial years
12.8
41
2.4
14.3
7.4
21.8 0.3
Composition of Australian Exports
Food
Mineral and Fuels
Other Primary Products
Manufactures
Other goods including gold
Services
BOP adjustment
Chart 1: Source - Australian Trade and Investment Commission
The 2015-2016 composition of Australia’s exports exhibits the importance of minerals to
economic growth and development of this particular economy. The mineral and fuels contributed
the highest percentage of the exports, that is, 41%. The services came second with 21.8% and
manufactures third, contributing 14.3% of the total exports (Australian Trade and Investment
Commission, 2017).
2.1.1.2. Strong Performance of Visitor Economy Exports
The visitor economy exports entail the spending within an economy by foreign tourists
for both leisure trips and business incorporating transportation expenditure (Nils Gottfries;
Palgrave Macmillan., 2013, p.69). In recent years, the earnings from Australia’s visitor economy
have been on the increase and thus contributing to economic expansion. For example, in the
2015-2016 trading period, the visitor economy export income stood at 44.8 billion Australian

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Dollars. This was more than 18% increase from what was received in a 2014-2015 financial year
(Australian Trade and Investment Commission, 2017).
Graph 3: Retrieved from Australian Trade and Investment Commission
2.1.1.3. Export of Minerals
During 2015-2016 trading period, the iron ore continued to be the leading Australia’s
export earner. The sale of iron ore in the international market earned this economy 47.8 billion
Australian Dollars. Though, these earnings were 12% lower compared to what was registered in
the 2014-2015 financial year due to lower prices in the global market. The earnings from coal
and crude petroleum also declined because of weaker prices in the overseas market. Despite this
drop in export income, the earnings from the exportation of gold increased by 23% which
resulted from swell in gold prices in the global market as well as growth in production in

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Australia (Australian Trade and Investment Commission, 2017). Liquefied Natural Gas is also
another crucial resource contributing to economic expansion in Australia. For instance, 2015-
2016 trading year, Liquefied Natural Gas contributed roughly 0.5% to the economic growth.
Impact of exports to the economy
Graph 4: Increase in the aggregate demand
Price level
Real GDP (Y)
Export earning is one of the components of the aggregate demand. In Australia, the
income of exports has been on the increase in the recent years. On the graph four above, this
increase is illustrated by the change in aggregate demand curve from AD to AD1. This shift
results in an increase in the real Gross Domestic Product and also the general prices in the
economy. The real Gross Domestic Product changes from Y1 to Y2 whereas the prices shift from
P1 to P2.
AS
P2
P1
AD 1
AD
Y2Y1

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2.1.2. Housing Boom
In the recent years, Australia’s housing market has experienced steady conditions that are
contributing to the prosperity of the economy. This situation has helped to increase
diversification in the economy as people do not have to concentrate in mining sector only.
Several influences have contributed to a boom in the Australian real estate market. Foremost,
major cities such as Melbourne and Sydney have experienced population increase as people
migrate to the towns in search of opportunities. The rise in population has increased the demand
for dwellings. The low cost of borrowing and increased access to credits have also helped to
amplify the demand for homes in Australia (Khezr, 2015, p.490).
Moreover, a rise in incomes of Australians and government policies such as tax
concessions on housing and negative gearing have made the demand for dwellings to surge
(Dufty-Jones & Rogers, 2016, p.54). As a result, the prices of homes have increased significantly
and thus contributing to economic growth. More houses are being constructed, and this business
is employing many individuals.
Prices in Australian housing market
Jun-15
Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17-1
0
1
2
3
4
5
Residential Property Prices
Residential Property Prices
%
Graph 5: Extracted from Australian Bureau of Statistics (ABS)

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Graph 6: Retrieved from theGuardian.com
The housing boom is playing an important role in stirring economic growth and
development in Australia. In the 2015 trading period, the 0.49% of the Gross Domestic Product
came from residential housing construction (Jericho, 2017).
2.1.3. Rise in Household Consumption
Household consumption spending includes the expenses incurred by resident households
on goods and services. Durable goods such as furniture, household electrical appliances, and cars
are also included in the determination of the household final consumption spending (Sexton,
2015, p.81). Consumption by families plays a major role in the economic development of any
country. In fact, the use of monetary and fiscal instruments by governments is intended to

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stabilize the levels of consumption in the economy with a view of attaining stable economic
development.
2012 2013 2014 2015 2016
0
0.5
1
1.5
2
2.5
3
3.5
Household final consumption (annual
% Growth)
Household final
consumption (annual %
Growth)
%
Graph 7: Source - The World Bank
Figures from figure seven above shows that household consumption spending is on the
rise. For instance, in 2016, the household consumption spending grew by 3.21% compared to
2.58% increment recorded in 2015 (The World Bank, 2017). The growth in the home
consumption spending increases the aggregate demand and expansion in the real Gross Domestic
Product. Several factors influence the growth in this variable in the Australian economy.
Foremost, the Reserve Bank of Australia has lowered to the cost of borrowing since the
occurrence of the Global Financial Crisis of 2008/2009. The low interests have made people to
increase their borrowing resulting in growth in consumption and investment levels in the
economy.

AUSTRALIA’S ECONOMIC GROWTH 12
Graph 8: Extracted from Business Insider
It is clear that the Reserve Bank of Australia made significant reductions in the cash rate
since the occurrence of Global Financial Crisis in 2008/2009. When the crisis hit, the bank made
a sharp cut in the cash rate from 7.25% to 3%. Currently, the cash rate stands at 1.5% (Scutt,
2017). These reductions in the interest rates have helped to stimulate economic expansion in the
country. Apart from the low-interest rates, other factors that have contributed to amplify
consumer spending in Australia includes stable employment creation and low household saving
rates.
2.1.4. Low and Relatively Stable Inflation
Inflation takes place when there is a persistent rise in the general prices in an economy.
Therefore, the levels of inflation play a vital role in economic development of a country. The
sound economic policies put in place by the government of Australia have enabled this economy
to maintain relatively low and stable inflation.

AUSTRALIA’S ECONOMIC GROWTH 13
2012 2013 2014 2015 2016
0.00
0.50
1.00
1.50
2.00
2.50
3.00
1.76
2.45 2.49
1.51
1.28
Inflation rate
Inflation rate
%
Graph 9: Data Retrieved from the World Bank
Low and stable levels of inflation have been vital in economic expansion in Australia.
Foremost, low inflation has helped to improve the living standards of low and mid-income
individuals. The low level of inflation denotes even those Australians who receive the modest
pensions and wages have their buying power maintained if not enhanced.
The low-interest rate is also another benefit Australia’s firms and consumers are
benefiting from as a result of low levels of inflation. Cheap interest rate lowers the cost of
borrowing money (Scutt, 2017). As a result, the households have increased their consumption of
durable products such as autos and houses. The business sector has been challenged to carry out
investments meant to boost their productivity so as they can remain competitive and prosper
without carrying out speculative business expansions.

AUSTRALIA’S ECONOMIC GROWTH 14
2.2. Obstacles to Australian Economic Progress
2.2.1. Slow Wage Growth
In the recent years, Australia has recorded the weak growth in the earnings. For instance,
the 2016 trading period registered 2.1% rise in the wage price index, the lowest level in the past
twenty-five years (Department of Industry, Innovation and Science, 2017). Studies accomplished
by the Australian Bureau of Statistics (ABS) and the Reserve Bank of Australia (RBA) shows
that both the size and frequency of wage growth have been declining in the last ten years. The
weak expansion in the pay rate is resulting from deteriorating terms of trade and a fall in
business confidence.
Moreover, 2016 continued to experience a drop in real net national disposable income
(RNNDI) per capita. The RNNDI gauges the disposal earnings of Australians and is considered
as an excellent measure of living standards (Department of Industry, Innovation and Science,
2017). Wages play a significant role in stimulating economic growth in a country. Therefore, a
moderate increase in earnings is detrimental to buying the power of Australians. A drop in
consumption levels is likely to curtail business investments and thus weak employment creation
and economic growth.
2.2.2. Business Investments are falling
During 2015-2016 financial year, household consumption and government spending
contributed 1.6% and 0.8% to the Gross Domestic Product growth. The net exports also made a
positive contribution of 1.4%. On the contrary, business investments deducted 1.7% from the
Gross Domestic Product growth (Department of Industry, Innovation and Science, 2017). This
situation resulted from deteriorating business investments, especially in the mining industry.

AUSTRALIA’S ECONOMIC GROWTH 15
Graph 10: Source - Department of Industry, Innovation, and Science
At the investments in the mining sector were at the peak in the 2012-2013 trading period.
However, from 2014, the investments in this area have been on a continuous drop as shown on
graph ten above. While the investments in the mining industry are declining, the investments in
services and construction are not growing at a high rate enough to offset the decline being
encountered in mining. If this trend continues, then the economic progress of Australia will be
impacted significantly since business investments are critical to employment creation and
economic growth and development.

AUSTRALIA’S ECONOMIC GROWTH 16
2.2.3. Lagging Business Confidence
Graph 11: Source - Department of Industry, Innovation, and Science
The chart eleven above shows the confidence and condition indices in the Australian
economy as provided by the National Australia Bank (NAB). The business conditions index
denotes a composite directory based on employability, profitability and trading conditions for the
previous month. On the other, the confidence index evaluates the discernment of upcoming
industry performance (Department of Industry, Innovation and Science, 2017). Though the
business conditions improved in a 2015-2016 trading year, the business confidence declined.
This scenario is detrimental to economic growth as lack of sufficient confidence among the
investors is likely to lead to a reduction in the levels of investments in an economy.
2.3. Government Plans to Boost Economic Growth and Development
The government has an important function in the economic development of a country.
The government must ensure that it provides a favorable environment for the operations of the

AUSTRALIA’S ECONOMIC GROWTH 17
businesses. Like many other states, the leadership of Australia is continually putting in place
plans meant to boost economic expansion. This government makes use of both monetary and
fiscal policies to guarantee financial stability (Robinson et al., 2015, p.10). Some of the measures
put in place to enhance economic development include reduction of taxes, improving tourism
industry, infrastructure development as well as enhancing education and training.
2.3.1. Reduction of Taxes
Taxation is one of the methods deployed by states to stir economic growth and
development. High tax rates are harmful to business activities as they curtail investments and
consumption. Therefore, when the government wants to accelerate job creation, it makes cuts in
the taxes paid by the businesses and the consumers. In Australia, the government has taken some
initiatives to reduce the tax burden on consumers and investors. For example, from the start of
the 2017-2018 trading period, Australians whose taxable income exceeds $180 000 received a
tax slash of 2% (Power, 2017). The corporate tax paid by small business enterprises was also
reduced from 28.5% to 27.5% during 2017 financial period. Also, in its 2016-2017 Budget, the
government of Australia has declared its plans to progressively slash the corporate tax from 30%
to 25% (Australian Taxation Office, 2016). Such steps will help to stimulate economic growth
and accelerates the government’s efforts diminish unemployment.
2.3.2. Improving Tourism Industry
Australia has also initiated schemes to enhance the tourism sector to increase the
contribution of this area to the economic growth. For example, the government launched long-
term tourism strategy known as the 2020Tourism Industry Potential. Under this arrangement, the
government is committed to establishing a competitive digital capacity to boost the marketing of
tourism in the international market. Besides, the leadership of this country has intentions to

AUSTRALIA’S ECONOMIC GROWTH 18
facilitate investments in tourism by formulating enabling policies and enhancing transport
tourism as well as accommodation capacity (Meredith & Dyster, 2012, p.61).
2.3.3. Infrastructure Development
No economy can flourish without continuous improvements on its infrastructure. Most of
the well-performing economies such as the United States, China, India, and Japan have good
infrastructures in place. In Australia, the government is continually investing in rail port, and
road, communication infrastructure to accelerate the productive capacity of the country
(Robinson et al., 2015, p.56). Moreover, improvement in infrastructure will help to relieve
passenger and freight congestion, enhance safety and support growth.
Graph 12: Impact of better infrastructure on the economy
Price level
Real GDP (Y)
The improvements to infrastructure will lower the cost of doing businesses and also
increase productivity. Low cost of production and a swell in productivity will result in the
growth of the aggregate supply. On the graph twelve above, an increase in the aggregate supply
AD
SRAS 1
SRAS 2
Y1 Y2
P2
P1

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is illustrated by the change in the total supply rightward from SRAS1 to SRAS2. This shift leads
to growth in the real Gross Domestic Product from Y1 to Y2 and also a drop in the general prices
from P2 to P1.
2.3.4. Enhancing Education and Training
The government is undertaking considerable investments to boost the skills of employees
and by ensuring that the teaching and training system in the country meets the varying needs of
the economy. The government’s intention of developing education and training is to make sure
that the Australians benefit from high-quality education and amplify their opportunity to add to
economic growth and development while raising their living standards.
Conclusion
For the past five years, Australia has had annual economic growth unaffected by the
recession. The country’s economic growth has been above two percent which is a sign of a
healthy economy. Several factors have contributed to this remarkable growth. Firstly, for the last
five years, Australian exports earnings have been on the increase. For example, in 2016, the
exports grew by 6.67%. The gains from Visitor economy and gold recorded the highest increase.
Though earnings from iron have reduced due to weak prices in the international market, iron ore
continued to be the leading Australia’s export earner. The boom in the housing sector has also
helped to stir the economy of Australia to prosperity. The high demand for homes has resulted in
the construction of more houses thus employing many Australians. Furthermore, low inflation
and growth in household consumption facilitated by low-interest rates and stable job creation are
contributing to economic expansion in the country. Despite the remarkable economic growth, the
Australian economy is facing several challenges. Some of these difficulties include slow wage

AUSTRALIA’S ECONOMIC GROWTH 20
growth, falling business investments, and lagging business confidence. Finally, the government
is continually putting in place mechanism to achieve potential Gross Domestic Product. Part of
these efforts entails advancing infrastructure, education, and training, tourism as well as a
reduction in taxes.

AUSTRALIA’S ECONOMIC GROWTH 21
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