Current State of Australian Economy: Analysis and Issues

This report analyzes the current state of the Australian economy, focusing on economic growth, unemployment, inflation, and trade statistics. It also discusses the major issues that the economy is currently facing. The analysis is based on data from 2015 to 2019.

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Economics
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Table of Contents
Abstract............................................................................................................................................2
Introduction......................................................................................................................................4
Current State of Australian economy..............................................................................................4
Economic growth.........................................................................................................................4
Unemployment rate.....................................................................................................................6
Inflation........................................................................................................................................7
Trade............................................................................................................................................8
Major issues that Australia is currently facing..............................................................................10
Conclusion.....................................................................................................................................11
References......................................................................................................................................12

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Abstract
The report is prepared to analyze current state of Australian economy in comparison to trend
performance of the economy in comparison to past five years. Analysis of economic
performance is based on evaluation of some crucial economic indicators. In this connection, the
first important indicator is that related to aggregate output of the nation. The comprehensive
measure used for estimating aggregate output a nation is known as Gross Domestic Product. It is
a measure that computes monetary value of produced goods and services. Growth in GDP
measured by percentage change in GDP from one year to next be used a measure of economic
growth of nation. In order to evaluate current state of economic growth, growth rate of GDP in
the respective years are take into consideration. Evaluation of labor market performance depends
on the trend in unemployment rate of the nation. Movement of price level is to be understood in
terms of recorded trend in the inflation rate of the economy. It is a measure of rate of change in
the consumer price index. Measures related to international trade include current account
balance, term of trade, net foreign debt and value of Australian dollar. The current economic
performance of the nation as recorded in 2019 was compared with the recorded performance
since 2015. Apart from discussing current economic performance the report also investigates
issues faced by Australian economy in current years.
Statistics recorded by Australian Bureau of Statistics shows that Australian economy
grew only at a rate of 0.5 percent at the end of second quarter of 2019. Most part of the economic
growth was accounted by steady performance of external sector. Trade balance of Australia has
improved significantly. Along with this there is a considerable increase in government spending
making positive contribution to GDP growth. Economic growth in recent year is relatively lower
than that the recorded growth in the previous year. Unemployment rate in the economy has

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decreased in 2019 when compared to the rate of unemployment since 2015. Rate of
unemployment in August 2019 however is slightly higher than the recorded unemployment rate
in the previous month. Part time employment has increases while that of full time employment
has decreased. There is however an overall increase in employment mainly due to the increase in
part time employment. Price level as measured by the inflation rate of the economy remained
almost stable and within the targeted range. In case of trade, despite improvement in current
account balance, the economy is still suffering from a current account deficit. There is an
overtime increase in net foreign liabilities. Terms of trade remains almost favorable while value
of Australian dollar depreciated against US dollar in recent times.
The below average growth rate of Australia has become one of the major concern for the
economy. Australia has now recorded the weakest ever growth rate. Along with slow rate of
economic growth, two other issues adding to economic tensions are persistently low growth of
wages and crisis in the housing market.

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Introduction
Economic health of a nation depends on the state of some major macroeconomic
indicators. The important macroeconomic indicators include economic growth, state of
employment, inflation, trade statistics and others (Goodwin et al. 2015). The paper conducts a
report on current status of Australian economy considering trend performance of indicators such
as economic growth, unemployment, inflation and trade statistics since 2015. Each of these
indicator measures economic performance in different areas. Comparison of current economic
performance to that of performances in the past years helps to understand economic progress in
the last few years. Australia is a highly open economy. Therefore, not only domestic economic
events but also events in the global economy interrupt Australia’s economic performance (Uribe
and Schmitt-Grohe 2017). In addition to discussing current economic performance of Australia,
the report also aims to discuss three major issues that the economy is currently facing. These
issues interrupt economic performance of Australia by hampering performance of different
economic variables.
Current State of Australian economy
Economic growth

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Figure 1: Trend in GDP growth (Chain volume measure)
(Source: Abs.gov.au. 2019)
Figure 2: Annual GDP growth rate
(Source: Abs.gov.au. 2019)
The Australian economy accounted a seasonally adjusted growth rate of around 0.5
percent in the June quarter of 2019. Recorded growth rate throughout the year was 1.4 percent.
The economic growth in the latest quarter s mainly driven by the growth of external sector.

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Growth in the domestic economy remain almost stable. In the recent economic growth, net
export accounted 0.6 percent (Nguyen and Wang 2019). The steady export growth indicates
strong growth in the export of mining commodities. In the increased final demand the largest
contributor is government spending. The average real GDP growth rate in 2015 was 0.6 percent.
Until the June quarter of 2006, GDP growth continued to increase. In the third quarter of 2016
GDP growth though has declined but it recovered in 2017. Since the second half of 2018,
economic growth started to decline due to internal and external economic events. In recent year,
growth rate though slightly improved but it is below the average growth rate.
Unemployment rate
Figure 3: Trend in unemployment rate in Australia
(Source: Abs.gov.au. 2019)
Rate of unemployment in August 2019 increased slightly to 5.3 percent from 5.2 percent
in the last month. People looking for part time employment has increased significantly while
those looking for full time employment has decreased. Overall employment has increased as

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increase in number of part time employment offset the decrease number of full time employment
(Mallick 2019). The trend unemployment rate in Australia revealed that rate of unemployment in
at the end of 2015 was 5.7 percent. Given a slow growth rate unemployment rate slightly
increased to 5.8 percent in 2016. Since then unemployment rate continued to fall. The recorded
unemployment rate in 2017 and 2018 were 5.6 percent and 5.0 percent respectively.

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Inflation
Figure 4: Inflation trend in Australia
(Source: Abs.gov.au. 2019)
The analysis of price level movement of Australia suggested that inflation rate since 2015
remained within targeted range of 2 to 3 percent. Between 2015 and 2016, inflation rate
decreased from 1.7 percent to 1.5 percent. For the next two years’ inflation rate remained almost
stable at 1.9 percent. In June 2019, rate of inflation was 1.6 percent which is higher than the
inflation rate of 1.3 percent in the last quarter. The slight increase in the rate of inflation is
mainly due to the increase in food price (Nath and Sarkar 2019). The inflation rate for food items
reached to the highest level in the last five years. Transport price also increased significantly.

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Trade
Figure 5: Current account balance in Australia
(Source: Abs.gov.au. 2019)
Figure 6: Terms of Trade Index
(Source: Abs.gov.au. 2019)

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Figure 7: Australia’s net foreign debt
(Source: Abs.gov.au. 2019)
Figure 8: Movement of Australian dollar against US dollar
(Source: rba.gov.au. 2019)

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The statistics of international trade shows that current balance remain of Australia
remained at a deficit since 2015. In the last five years the highest deficit was recorded in 2016
while the deficit is the lowest in 2019. The terms of trade of Australia though has fluctuated in
some years, there is an overall increasing trend showing a favorable trade position of Australia.
Another worrying factor for balance of payment account of Australia is the continuously
increasing net foreign liabilities. Net foreign debt of Australia has constituted an upward rising
trend since 2015. One important indicator of Australia’s position in the international economy is
the value of Australian dollar. The value of Australian dollar fluctuated widely since 2015. Give
a below average growth rate and instability in the global economy value of Australia dollar has
depreciated considerably compared to the value of dollar in 2015.
Major issues that Australia is currently facing
Australian economy in recent years however is undergoing some severe economic issues
disrupting economic performance of the nation. The nation has set for the weakest GDP growth
since the past 20 years. Economists opined that economic growth of Australia is now virtually
has reached to a halt. The National Bank’s has made forecast of only 0.2 percentage point. With
this the economic growth rate is forecasted to reach to 1.2 percent which is the slowest growth
rate in the last two decades (Taylor 2019). The slow pace of growth has reduced retail turnover.
Clothing, footwear, personal accessories, department stores and other retailing experienced a
significant fall. Expansionary policies like tax offset or decline in cash rate even failed to bring
back the pace of growth.
Another major problem that the economy is suffering for almost more than a year is the
slow wage growth. Wage growth in Australia remain relatively weak. Wage has increased only
by 0.5 percent since the three months to March. Trend in wage growth indicated that yearly wage

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growth stuck around 2.3 percent in the last nine months. Wage in private sector though increased
a little but remained at a relatively low level (Scutt 2019). Wages in public sector increased at a
much slower pace compared to previous quarters. The slow wage growth hurt consumers’
confidence adding a recessionary pressure to the economy.
Fluctuation in the housing market is one major source of vulnerability to the Australian
economy. After a steady increase since 2000s, housing price has started to fall since the last year.
Most notable decrease in housing price was observed for Sydney and Melbourne. In 2018,
nation-wide housing price declined by 4.8%. (Zhou 2019) Housing market crash possesses a risk
to the macroeconomic environment of Australia.
Conclusion
Analysis of current economic state of Australia reveals that for some dimension, the
economy is performing well while in other performance in recent year is relatively weak. In case
of economic growth, the last recorded GDP growth is below the average growth rate of the
nation. Factors making positive contribution to economic growth include net export and
government expenditure. Unemployment though is relatively lower than past years’
unemployment rate, recorded unemployment in the last quarter is slightly above that recorded in
the previous quarter. Inflation remains within the targeted range. Current account balance though
has improved it still accounts a deficit. Some important issues currently hampering economic
performance of Australia are below average growth rate, stagnant wage growth and housing
market crisis.

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References
Abs.gov.au. 2019. Browse Statistics. [online] Available at: https://www.abs.gov.au/browse?
opendocument&ref=topBar [Accessed 20 Sep. 2019].
Goodwin, N., Harris, J.M., Nelson, J.A., Roach, B. and Torras, M., 2015. Macroeconomics in
context. Routledge.
Mallick, D., 2019. Policy regimes and the shape of the Phillips curve in Australia. Journal of
Policy Modeling.
Nath, H.K. and Sarkar, J., 2019. Inflation and relative price variability: new evidence from
survey-based measures of inflation expectations in Australia. Empirical Economics, 56(6),
pp.2001-2024.
Nguyen, V.H. and Wang, J., 2019. The Australian Economy in 2018–2019: Convergence in
Economic Activity across Australia. Australian Economic Review, 52(1), pp.5-18.
rba.gov.au. 2019. Historical Data. [online] Available at:
https://www.rba.gov.au/statistics/historical-data.html#exchange-rates [Accessed 20 Sep. 2019].
Scutt, D. 2019. Australian wage growth remains sluggish and that's unlikely to change anytime
soon. [online] Business Insider Australia. Available at:
https://www.businessinsider.com.au/australia-average-wages-q1-rba-cash-rate-2019-5 [Accessed
20 Sep. 2019].
Taylor, D. 2019. Economy set for weakest growth in nearly 20 years. [online] Available at:
https://www.abc.net.au/news/2019-09-04/gdp-growth-set-for-weakest-result-in-nearly-20-
years/11475438 [Accessed 20 Sep. 2019].

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Uribe, M. and Schmitt-Grohé, S., 2017. Open economy macroeconomics. Princeton University
Press.
Zhou, N. 2019. Australian house prices falling at fastest rate in a decade. [online] the Guardian.
Available at: https://www.theguardian.com/australia-news/2019/jan/02/australian-house-prices-
falling-at-fastest-rate-in-a-decade-data-shows [Accessed 20 Sep. 2019].