Economic Overview of Australia with Policy Suggestions

This report provides a comprehensive economic overview of Australia, examining key economic indicators such as GDP, inflation, unemployment, and interest rates from 2014 to 2018. It delves into the components of GDP, including consumption, investment, government expenditure, and net exports, to identify the country's economic condition. The analysis reveals a period of economic stagnation, characterized by low inflation, low unemployment, and low wage growth, despite some positive trends in net exports and consumption. The report concludes by suggesting expansionary monetary policies, such as cutting the bank rate and purchasing bonds, to stimulate investment, increase liquidity, and improve the overall economic condition of Australia. The report is based on data from various sources, including Tradingeconomics.com, Ceicdata.com, and Data.worldbank.org, and references relevant economic literature to support its findings and recommendations.

Running head: Economic Overview of Australia with Policy Suggestions
Economic Overview of Australia with Policy Suggestions
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1Economic Overview of Australia with Policy Suggestions
Executive Summary
The report pertains to the economic condition of Australia. It studied the economic indicators of
the country and found out the condition of the eocnomy of the country. After studying the
components of the GDP of the country it is concluded that country is going through economic
stagnation and thus report suggest expanisonary monetary policy to improve the economic
conditiion of Australia.

2Economic Overview of Australia with Policy Suggestions
Table of Contents
Introduction......................................................................................................................................3
Key economic indicators of Australia.............................................................................................3
Components of GDP........................................................................................................................7
Policy suggestions.........................................................................................................................10
Conclusion.....................................................................................................................................11
References......................................................................................................................................12

3Economic Overview of Australia with Policy Suggestions
Introduction
Australia is among the largest countries in the world with respect to land size and is
ranked at position six.. The country got independence for the United Kingdom on 1st January,
1901. The population density of the country is quite low and is ranked among the last 25% of the
countries as far as population density is concerned. It is a water locked country and is the largest
island in the world. According to the Gross Domestic Product the country is ranked in the first 25
countries in the world. In 2018, the GDP of the country was recorded as $1.5 trillion. As per
census of 2016, the population in Australia is over 23 million. The per capita income of the
country was $59, 655, however, the income equality of the country was moderate and is evident
from the Gini coefficient of 33.0. Thus, this report discusses the various economic factors of the
country and thereby identify the economic condition of the country and suggest suitable policy
suggestion to correct any persisting adverse condition occurring within the economy of the
country.
Key economic indicators of Australia
The most important factors that indicates economic health and gives the economic
overview of the country are gross domestic product (GDP), consumer price index (CPI), inflation
rate, unemployment rate and interest rate. To have a detailed idea of the economic condition in
Australia analysis of the aforesaid indicators have been made in the following paragraphs.
In 2014, the GDP of Australia was $1.47 trillion and in 2018 it was recorded as $1.43
trillion. Therefore, from data it is evident that growth in GDP of Australia has been trending low
and the above figure supports the finding. During second half of 2016, the growth rate even

4Economic Overview of Australia with Policy Suggestions
reached as low as 0%. Thus, downward sloping GDP growth trend line justifies the lower GDP
value in 2018 than in 2014.
Figure 1: GDP growth percentage of Australia
Source: (Tradingeconomics.com 2019)
It is further noted that the unemployment rate of the country has improved over the time.
In 2014, the unemployment rate of the country was over 6% and then on it lowered over time
and fell close to 5% in 2018. .The rate of decline in unemployment was quite steep and the trend
line shows that it followed a declining path over the past five years.

5Economic Overview of Australia with Policy Suggestions
Figure 2: Unemployment rate in Australia (%)
Source: (Tradingeconomics.com 2019)

6Economic Overview of Australia with Policy Suggestions
Figure 3: Inflation rate in Australia
Source: (Tradingeconomics.com 2019)
It is seen from figure 3 showing inflation rate of Australia for the last five years. In 2014,
inflation rate was at 3%, which is generally a low value for inflation. Furthermore, the inflation
rate followed a downward trend and reached close to 1.5%. Thus, it indicates that the price
movement of products in the country has been slow in the last five years causing low push to
inflation rate. The change in inflation rate in Australia along with trend line for the past five
years has been given in figure 3.
To understand inflation rate more appropriately for the case of Australia it is important to
look at the data on CPI. It can be observed from figure 4 that CPI in Australia has increased
significantly in the last five years and it shows that the price of consumer goods have
considerably increased (Lakner et al. 2018). However, from the data of inflation rate it seemed
that the prices of goods and services have not increased noticeably, but data on CPI and inflation

7Economic Overview of Australia with Policy Suggestions
contradicts with each other. Thus it can be said that the low inflation rate was not due to low
price of consumer goods but due to other commercial goods in the economy. Hence, consumers
or the people have not benefitted directly from the persisting low inflation rate of the country.
Figure 4:
Consumer price index in Australia
Source: (Data.worldbank.org 2019)
The interest rate in Australia has also followed the suit like the other economic indicators
discussed above and in the last five years it has fell by many points. In the first half of the 2014,
the interest rate of the country was recorded as 5.95% and in 2018 the interest rate fell to 5.26%.
However, lower interest rate suggests that there would be higher investment in the country. Thus,
interest rate. Thus, the economic indicators of the country suggest that the economic condition of
the country should be good, but the data on GDP growth and change in GDP value indicates that
the country is actually struggling despite the low unemployment and inflation rate.

8Economic Overview of Australia with Policy Suggestions
Figure 5: Interest rate in Australia
Source: (Ceicdata.com 2019)
Components of GDP
Gross Domestic Product is a broad factor and any change in it is contributed by many
other small factors. The most important components that influence the GDP of Australia are
consumption, investment, government expenditure and net exports. Thus, to discuss the changes
in the GDP of the country in detail it is necessary to study these components thoroughly.
Figure 6: Consumption growth in Australia
Source: (Created by the Author)
2014 2015 2016 2017 2018
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
Consumption Growth (%)

9Economic Overview of Australia with Policy Suggestions
From figure 6, it can be observed that the consumption in Australia has increased over the
last five years and the trend line also support the analysis. However, it is hard to conclude that if
the rise in consumption is in absolute terms or not and thus it is too early to comment on the
increase in income level of the people of Australia. Hence, it is important to look at the other
components and their growth trend.
Figure 7: Investment in Australia as % of GDP
Source: (Ceicdata.com 2019)
The above figure show that in second half of 2014 the investment made in Australia was
about 28 % of the GDP of the country. However, the investment rate of the country gradually
declined and in the last five years with irregular rise and fall it fell below 22% of the total GDP
of the country in January 2019. Thus, low investment indicates that the economy of Australia is
not doing well (Stiglitz, Sen and Fitoussi 2017). The fall in GDP and its low growth is thus
significantly due to the fall in investment and thereby formation of lower output in the economy.

10Economic Overview of Australia with Policy Suggestions
The figure given below show the percentage of GDP that Australia use as its government
expenditure. From the figure it can be concluded that government expenditure has increased over
the past five years and the trend shows that the increase in government spending will increase
more in the future. However, the rate of increases in government expenditure decline in 2016 and
the low increase in the rate of investment continues until 2018. Thus, staggering increase in the
rate of government expenditure indicate that the country is suffering from economic downturn.
Figure 8: Government expenditure of Australia (% of GDP)
Source: (Data.worldbank.org 2019)
The net export data shown in figure indicate that the county has done well in the export
sector as during 2014 and 2015 the net export of the country was negative but from 2016 the net
export of the country reached positive value. From 2016 onwards the export sector of the country
improved and significantly increased from 2017 to 2018. In 2017 the net export of the country
worth $0 billion, from there in 2018 the net export of the country reached $15 billion. Thus, it is

11Economic Overview of Australia with Policy Suggestions
clear that how well the export sector of the country performed. The figure indicating the
performance of the export sector of Australia is given below as figure 9.
Figure 9: Net exports good and services of Australia (in US$ billion)
Source: (Data.worldbank.org 2019)
From the above discussion on the economic indicators and components of the GDP
indicates that the country is going through a period of stagnation that gave rise to low inflation
and low unemployment rate. It is also evident that the country is suffering from low wage growth
(Bishop and Cassidy 2017). Therefore, with low investment the country is generating less output
that affects the economic condition of the country and slowing it down.

12Economic Overview of Australia with Policy Suggestions
Policy suggestions
The stagnation in the economy of Australia can be solved by the policies of the Reserve
Bank of Australia. To stabilize the inflation rate, decreases the unemployment rate and increase
the GDP of the country the reserve bank should use expansionary monetary policies (Furceri,
Loungani and Zdzienicka 2018). The effective policies are cut in bank rate that boost the
investment in the economy and purchasing bond from the economy and thereby increasing the
liquidity of the country. Thus, implementing these policies would improve the economic
condition of the country.
Conclusion
The discussion made above on the economic indicators show that Australia is going
through economic stagnation. There are many indicators by looking at which it seems that the
economic condition is good but in actual it is indication of economic stagnation. Analysing the
components of GDP helps to find the stagnating condition of the economy of the country. Thus,
to improve the economic condition of the country effective expansionary monetary policies are
required.

13Economic Overview of Australia with Policy Suggestions
References
Bishop, J. and Cassidy, N., 2017. Insights into low wage growth in Australia. RBA Bulletin,
March, pp.13-20.
Ceicdata.com (2019). Australia Investment: % of GDP [1959 - 2019] [Data & Charts]. [online]
Ceicdata.com. Available at: https://www.ceicdata.com/en/indicator/australia/investment--
nominal-gdp.
Ceicdata.com (2019). Bank Lending Rate | Economic Indicators. [online] Ceicdata.com.
Available at: https://www.ceicdata.com/en/indicator/bank-lending-rate.
Data.worldbank.org (2019). Consumer price index (2010 = 100) | Data. [online]
Data.worldbank.org. Available at: https://data.worldbank.org/indicator/FP.CPI.TOTL?
end=2018&locations=AU&start=2014.
Data.worldbank.org (2019). General government final consumption expenditure (% of GDP) |
Data. [online] Data.worldbank.org. Available at:
https://data.worldbank.org/indicator/NE.CON.GOVT.ZS.
Data.worldbank.org (2019). Net trade in goods and services (BoP, current US$) | Data. [online]
Data.worldbank.org. Available at: https://data.worldbank.org/indicator/BN.GSR.GNFS.CD?
locations=AU.
Furceri, D., Loungani, P. and Zdzienicka, A., 2018. The effects of monetary policy shocks on
inequality. Journal of International Money and Finance, 85, pp.168-186.

14Economic Overview of Australia with Policy Suggestions
Lakner, C., Mahler, D.G., Nguyen, M.C., Azevedo, J.P., Chen, S., Jolliffe, D., Prydz, E.B. and
Sangraula, P., 2018. Consumer Price Indices used in Global Poverty Measurement. Global
Poverty Monitoring Technical Note, (4).
Stiglitz, J.E., Sen, A. and Fitoussi, J.P., 2017. Report by the commission on the measurement of
economic performance and social progress.
Tradingeconomics.com (2019). Australia GDP Growth Rate | 2019 | Data | Chart | Calendar |
Forecast | News. [online] Tradingeconomics.com. Available at:
https://tradingeconomics.com/australia/gdp-growth.
Tradingeconomics.com (2019). Australia Inflation Rate | 2019 | Data | Chart | Calendar |
Forecast | News. [online] Tradingeconomics.com. Available at:
https://tradingeconomics.com/australia/inflation-cpi.
Tradingeconomics.com (2019). Australia Unemployment Rate | 2019 | Data | Chart | Calendar |
Forecast. [online] Tradingeconomics.com. Available at:
https://tradingeconomics.com/australia/unemployment-rate.