Economic Analysis of Australia: Interest Rates and GDP

This report provides an analysis of the Australian economy, focusing on the Reserve Bank of Australia's (RBA) recent reduction in the cash rate and its impact on employment, income growth, and inflation. It examines historical interest rate trends, GDP fluctuations, and the current business cycle, highlighting the factors contributing to the trough stage. The report discusses the implications of these economic factors for small businesses, particularly in terms of budget forecasts and financial planning. It emphasizes the importance of adapting to changing economic conditions and making strategic decisions to maximize opportunities for growth and profitability. The report also includes references to relevant academic sources.

Questions

Table of Contents
Questions 1 ......................................................................................................................................1
Questions 2.......................................................................................................................................2
Questions 3.......................................................................................................................................3
REFERENCES ...............................................................................................................................4

Questions 1
In recent time the, RBA has reduce the cash rate by 25 bps which recorded to 0.75% with
the main aim to increase employment, income growth and give better encouragement to
companies that inflation will be accordant with the medium term target. It is also observed that in
Australia the average rate of interest is 4.35 % from 1990 till 2019, as in 1990 it was hight from
the all time of around 17.50% that recorded 0.75 percentage on October 2019 (About Australia
Economy, 2019). It is observed that lower interest rate would impact the GDP as there would be
slow growth for some specific time but figures will change in future (GDP growth, 2019).
Throughout the year, the Australian economy contracted to the June quarters by 1.4 percent, that
was a weaker-than-anticipated result Moreover, a moderate defining moment seems to be
achieved during the first half of this year with economic development slightly higher than in the
second half of 2018.
Illustration 1: Interest rate
From the above published record by reserve bank of Australia, it has been estimated that
the interest rate would remain the same in future for some time because governance wants to
improve the weak economy. Lower interest rates and lower property prices have provided
assistance for demand growth, that has been picking up in the coming year. . It would be
beneficial for small companies manager to expand business in different part as because the can
arrange fund easily at lower rates. This also notices that in a Australia will need a sustained
period of low interest rates in order to ensure full jobs and the inflation target.
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Questions 2
In Australia by next year, growth is going to move to a high gear, mainly due to
increasing financing in mining and accommodation and a more accommodating monetary policy
environment that is required to support domestic demand. As it has been observed, that
currently the business cycle in Australia is facing trough. The three main reasons of trough are as
follows :
 When unemployment rate decrease – This is a main reason of trough stage in the
economy of nation. It is so because when rate of unemployment will decrease then
individuals will have source of income to invest in various operations and activities. Due
to this level of economy will start to boost. The boom's production phase requires far less
labour than the finance stage, though, this transformation liberates labour from resource-
related activities (Chubb and Watermeyer, 2017 ). On the contrary, businesses who will
offer jobs then their operations will increase and flow of cash will be more fluent that
may lead to upward movement in the economy. Thus, it is one of the crucial reason of
trough condition in the economies.
 Enhance in GDP – Another important reason of trough stage in economy of Australian
country is the increasing in level of gross domestic product during a particular time
period. Such as if economy's gross domestic product (GDP) is minimum in a business
cycle's contraction phase then trough situation can be incur as gross domestic product's
level increase. Like an example in the Australia, the GDP rate was of 2.4 % in year 2017
and in year 2018 it raised by 16.67 % to become of 2.8 %. In this case , their economic
cycle changed and trough condition occurred. Hence , the increasing in gross domestic
product can bring changes in economic cycle (Drahos and Braithwaite, 2017).
 Increasing in the expansion by corporate sector – Apart from the above mentioned
reasons, this is the last key reason of change in economical cycle in context of Australian
economy. If companies will able to get financial assistance at lower cost or expenditures
then they will surely focus to expand their ventures. Due to this scope of income will
raise for different aspects of an economy. As a result , economic phase of contraction will
fluctuate and can become as trough phase. Herein, it is important to know that expansion
done by companies should be of higher capital.
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Questions 3
Explanation to the client what impact this might have on their budget forecasts and how.
The small businesses can be effected by change in economical aspects. This is so because
they have minimum amount of capital to invest (Murray, 2016). In the context of Australian
economy, their GDP is expected to be remain constant for upcoming time period. In this
situation, the small businesses should change their activities of budget and try to raise their
expenditures activities. It is so because when level or rate of gross domestic product will constant
then there will be lower risk and small business can raise their production in order to get
advantage for future. It is a common trend in the aspect of economies of nations that this can not
be remain constant for long time period. Same as in the context of Australian economy, there
gross domestic product rate is equal and can increase in futuristic time period. For small business
this will be beneficial if they will take risk when rate of gross domestic product is constant. On
the other hand , if small businesses will not change their budgets then it will not benefit them.
This is so because in the business world “higher risk leads to higher amount of profit”. Thus,
small businesses should make change in their budget by increasing their expenses.
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REFERENCES
Books and Journals:
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.
Drahos, P. and Braithwaite, J., 2017. Information feudalism: Who owns the knowledge
economy. Routledge.
Murray, P., 2016. EU–Australia relations: a strategic partnership in all but name?. Cambridge
Review of International Affairs. 29(1), pp.171-191.
Online
About Australia Economy. 2019. [Online] Available Through:
<https://www.rba.gov.au/speeches/2014/sp-ag-131114.html>.
GDP growth. 2019. [Online] Available Through:
<https://www.theguardian.com/commentisfree/2019/oct/03/rba-is-cutting-rates-
because-the-government-has-abandoned-responsibility-for-economic-growth>.
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