ECON101 Economics Report: Australian Economy Analysis and Issues

This economics report provides a comprehensive analysis of the Australian economy's performance, focusing on key indicators from 2015 to 2019. It examines the GDP growth rate, unemployment rate, inflation rate, terms of trade, current account, net foreign debt, and the value of the Australian dollar, using data from Tradingeconomics.com and other sources. The report highlights that while the Australian economy has shown resilience, recent data indicates a slowdown, with a decline in GDP growth and an increase in unemployment. It also discusses three critical issues facing the economy in the next 12 months, including the burden of external debt, potential economic recession, and reduced demand for Australian exports. The report concludes that the Australian economy is not performing as well as in the last 5 years and may be heading towards a recession due to global economic changes and supply-side issues. The report uses secondary data from the World Bank for data analysis.

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ECONOMICS ASSIGNMENT

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Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
The current state of the Australian economy.............................................................................3
GDP growth rate of Australia....................................................................................................3
Unemployment rate....................................................................................................................4
The inflation rate of 5
Terms of trade............................................................................................................................5
Current account..........................................................................................................................6
Net foreign debt..........................................................................................................................7
Value of Australian dollar..........................................................................................................8
Three issues facing the economy in the next 12 months............................................................9
Conclusion................................................................................................................................10
Reference..................................................................................................................................11

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Introduction
One of the major responsibilities of the government is to monitor the economic performances
and regulate some of the indicators for the betterment of the economy. The economic
indicators help the government and economists to understand the health and the performance
of the economy. The objective of this paper is to discuss the current economic performance of
Australia compared to the performance in the previous years since 2015. The paper uses
secondary data from the World Bank for data analysis. The paper also states the issues that
the economy may face in the next 12 months.
Discussion
The current state of the Australian economy
GDP growth rate of Australia
GDP growth rate is an indicator of an economy that measures the changes in the national
GDP based on the GDP of the previous year. Understanding of the GDP growth rate allows
the reader to read the health of the economy.
Figure 1: Annual
GDP growth rate of
Australia
(Source:
Tradingeconomics.com, 2019)
The economic growth rate in Australia is higher than any other developed nations of the
world. However, the data for the year 2019 shows a drastic fall in the GDP growth rate of the
country. However, one of the positive points to note here is the slight increase in the GDP
growth rate in the august month of the same year. Australia is among the very few economies
2015 2016 2017 2018 2019 Aug-19
2.3360754810
9675
2.8467549510
8566 2.3425822867
6258
2.8349481329
6823
0.2803546
0.8035658
Annual GDP growth rate
Annual GDP growth rate

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of the world which was not affected much by the global financial crisis of 2007 (ABC News,
2019). Before 2018, the economic growth rate of Australia was high; however, due to the
recent changes in the global economy, the economic output of Australia has reduced. The
government of Australia can still correct the performance of the Australian economy with the
changes in the money supply and the interest rates in the coming years (Wilson et al. 2018).
However, at this moment the performance of the economy is going out of the desired path.
Unemployment rate
The unemployment rate is one of the important indicators of the health of an economy. It is
the ratio of the total people unemployed in the economy to the total size of the labour force.
2015 2016 2017 2018 2019 Aug-19
6.0542001724243
2
5.7098999023437
5 5.5911998748779
3 5.5988
5.1254
5.3951
Unemployment rate
Unemployment rate
Figure 2: The annual unemployment rate of Australia
(Source: Tradingeconomics.com, 2019)
The current unemployment rate of Australia is against the overall target set by the
government 5 years back. The trend of the economy that started in 2015 is now disrupted and
failing to achieve the overall goal of the government and the central bank of Australia. The
government aimed to keep the unemployment rate contained in 3.5% before 2020 (Chubb and
Watermeyer, 2017). The current unemployment rate of the economy can be due to the low
aggregate demand for the goods and services that have been impacted by the changes in the
external economy. The government should not let the unemployment rate to increase further
as that would lead the economy to a slowdown in the coming years.

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Inflation rate
Inflation indicator is known as the macroeconomic index that measures the changes in the
price level of all the goods and the services in the economy. Too high or too low inflation rate
are not desirable for the economy.
2015 2016 2017 2018 2019 Aug-19
1.508366721
65921 1.276990944
97328
1.948647409
44522 1.911400944
45692 1.903548 1.712546
Inflation rate of australia
Inflation rate of australia
Figure 3: The inflation rate of Australia
(Source: Tradingeconomics.com, 2019)
The current inflation rate of the Australian economy as can be seen from the data of august
2019 is 1.7% which is a decrease since the start of the year. While the decrease in inflation is
good for the economy, the government should monitor further changes as low inflation can
also be a sign for the economic slowdown. Compared to that current value of the indicator,
the past performances have been as per the goals of the economy. The government had the
target of 2% of inflation per year in the economy which has been achieved (Finance.gov.au,
2019). Overall, it can be said that there have not been major changes in the inflation rate data
since 2015.
Terms of trade
Terms of trade are the ratio of the price of export to the price of imports. If the demand for
Australian goods in partner countries increases, the price of the export increases relative to
the import. This increases the terms of trade of the economy (Wto.org, 2019). The goal of the
government is to increase the ratio for the added benefits of the economy.

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2015 2016 2017 2018 2019 43678
82.1
71.7
87 87.4 93.6 102.4
terms of trade
terms of trade
Figure 4: The terms of trade in Australia
(Source: Tradingeconomics.com, 2019)
The current terms of trade of the Australian economy are 102.4 which is closer to the goal set
by the government. The government and the central bank of Australia decided to set the goal
at 112 to extract more benefits from the economy. The current performance has been better
than the performance since 2015 and added to the national target. However, Morgan et al.
(2016) stated that terms of trade do not always contribute positively to the growth rate of the
exporting country unless the current account deficit is reduced.
Current account
The current account indicator of the economic measures the balance of trade of a particular
economy. It shows the payment received for the export to the payment received for the
import done. Therefore the current account balance is related to the terms of trade of the
economy.

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2015 2016 2017 2018 2019 Aug-19
-
57363139436.38
58
-
41196621625.92
98
-
35698208946.54
13
-
29062354066.84
37
-23254565452 -18652545652
Curent account
Curent account
Figure 5: The current account of Australia
(Source: Tradingeconomics.com, 2019)
The data shows that the current account deficit of the economy is reducing which is a positive
sign. That means the payment of the economy received for export is rising compared to the
payment done for the import of goods and services. The target of the Australian government
is to have a positive current account balance that would also increase the foreign currency
holding of the government. Hellwig and McAllister (2016) stated that increased foreign
exchange reserve can strengthen the economy and the value of the domestic currency
compared to the USD. The foreign exchange reserve also reduces the external debt burden for
the economy.
Net foreign debt
The net foreign debt of an economy is an indicator that measures the total debt of the
economy to bodies outside the national economy. The foreign debt needs to be paid using the
US dollars and hence the exchange rate of the domestic currency plays a big role.

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2015 2016 2017 2018 2019 43678
1630967
1521458
1646000
1600782
1729658
1689839
Net foreign debt (US mn dollar)
Net foreign debt (US mn dollar)
Figure 6: The net foreign debt of Australia over the years
(Source: Tradingeconomics.com, 2019)
The current level of net foreign debt of the Australian economy is lower than it was at the
beginning of the year. The present performance of the economy, in general, is better than the
performance since 2015 (Oecd.org, 2019). However, the economy requires a lot more time to
achieve the target set by the government to reduce the net external debt of the economy. The
data also shows that a lack of systematic reduction in the net foreign debt since 2015 and
hence it needs to focus on systematic reduction to provide a balance to the economy.
Value of Australian dollar
This is the value of the Australian currency in terms of the USD. The increase in the value of
the currency is desirable for the Australian economy as it would increase the purchasing
power of the Australian currency holders (Treasury.gov.au, 2019).

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2015 2016 2017 2018 2019 43678
0.820840000000
001
0.69704
0.719970000000
001
0.78633
0.70419 0.685750000000
001
value of australian dollar (in USD)
value of australian dollar (in USD)
Figure 7: the value of the Australian dollar in USD
(Source: Tradingeconomics.com, 2019)
The current value of the Australian currency is less compared to the values in the last 5 years.
This is not a good sign for the government and the importers of the market. The performance
of this indicator has deteriorated over the years failing to come closer to the set target by the
government (Pc.gov.au, 2019). The indication of further reduction in the value Australian
currency can put the extra burden to the government. The government can use a cut in the
corporate tax to increase the demand for the goods and services produced in Australia. That
may increase the value of the Australian currency in the coming years.
Three issues facing the economy in the next 12 months
 From the analysis of data, the most important issue that the economy will face in the
coming months is the greater burden of external debt. The value of the Australian
currency is reducing which requires the government to use more of domestic currency
to pay the same debt (Rhoades and Smart, 2018).
 Another important issue that the economy may face in the coming year is the signs of
economic recessions. The inflation of the economy is reducing, the GDP growth rate
is 20 years low and the unemployment is increasing shows that the economy can enter
the phase of the economic downturn in the coming months.
 The data also suggests that the demand for the products exported from Australia is
reducing. This can increase the supply in the domestic market leading to a further

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reduction in price which is not desirable for the economy. With the supply side, the
demand side is also expected to experience contraction due to the increase in
employment and a reduction in the purchasing power of the consumers.
Conclusion
Therefore the economy of Australia is not perfuming well compared to the last 5 years. In
most of the economic indicators, it has failed to achieve the national targets. The data
analysis shows that the economy may enter the phase of recession in the coming months. One
of the major factors for the changes in the Australian economy is the changes in global
economic activities. The study furnishes that there would be a supply-side crunch in the
economy that can further reduce the level of price and output in the coming years pushing the
Australian economy towards a recessionary phase of the business cycle.

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Reference
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at: http://www.abc.net.au/news/ [Accessed 21 Sep. 2019].
Chubb, J. and Watermeyer, R., 2017. Artifice or integrity in the marketization of research
impact? Investigating the moral economy of (pathways to) impact statements within research
funding proposals in the UK and Australia. Studies in Higher Education, 42(12), pp.2360-
2372.
Finance.gov.au. (2019). Department of Finance |. [online] Available at:
http://www.finance.gov.au [Accessed 21 Sep. 2019].
Morgan, B., McNeill, J. and Blomfield, I., 2016. Where Are the Community Enterprise
Lawyers? Towards an Effective Ecosystem of Legal Support for Small-Scale Sustainable
Economy Initiatives in Australia. Towards an Effective Ecosystem of Legal Support For
Small-Scale Sustainable Economy Initiatives in Australia (August 14, 2016). UNSW Law
Research Paper, (2016-50).
Hellwig, T. and McAllister, I., 2016. Does the economy matter? Economic perceptions and
the vote in Australia. Australian Journal of Political Science, 51(2), pp.236-254.
Oecd.org. (2019). OECD.org - OECD. [online] Available at: http://www.oecd.org [Accessed
21 Sep. 2019].
Pc.gov.au. (2019). Productivity Commission. [online] Available at: http://www.pc.gov.au
[Accessed 21 Sep. 2019].
Rhoades, G. and Smart, D., 2018. The political economy of entrepreneurial culture in higher
education: Policies toward foreign students in Australia and the United States. In The Social
Role of Higher Education (pp. 125-160). Routledge.
Tradingeconomics.com. (2019). TRADING ECONOMICS | 20 million INDICATORS FROM
196 COUNTRIES. [online] Available at: http://tradingeconomics.com.
Treasury.gov.au. (2019). Treasury.gov.au. [online] Available at: http://www.treasury.gov.au
[Accessed 21 Sep. 2019].

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Wilson, M.M., Tatham, P., Payne, J., L’Hermitte, C. and Shapland, M., 2018. Best practice
relief supply for emergency services in a developed economy: Evidence from Queensland
Wto.org. (2019). World Trade Organization - Global trade. [online] Available at:
http://www.wto.org [Accessed 21 Sep. 2019].