Analysis of Australian Economy: GDP, Inflation, Unemployment, Trade

This report provides a comprehensive analysis of the Australian economy, examining key economic indicators such as GDP, inflation, unemployment, and trade over a five-year period. The report delves into the trends of these indicators, identifying both positive and negative developments. It highlights the downward trend in GDP growth, the relatively low and upward-trending inflation rate, and the declining unemployment rate, while also acknowledging regional disparities. The analysis extends to trade, covering terms of trade, current account, and net foreign debt. Furthermore, the report identifies three major issues impacting the Australian economy: agricultural drought, a declining housing market, and a stagnating mining industry, and it provides a future estimation of the economy. The report concludes that while economic indicators are useful, they should be considered alongside other factors for a complete understanding of the economic condition.

Running head: Australian Economy
Australian Economy
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1Australian Economy
Abstract
The report discussed and analysed the key economic indicators of Australia. The key economic
indicators were GDP, unemployment, inflation and trade. The analysis of these indicators helped
to identify the economic condition of the country and thereby the future direction that the
economy is going to take. Further, the report discussed the three major issues of the economy
that has significant impact on the country and ultimately a future estimation of the economy has
been made.

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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Key Economic Indicators of Australia........................................................................................3
Gross Domestic Product..........................................................................................................3
Inflation....................................................................................................................................5
Unemployment........................................................................................................................6
Trade........................................................................................................................................7
Three major issues.......................................................................................................................9
Conclusion.......................................................................................................................................9
References......................................................................................................................................10

3Australian Economy
Introduction
Australia is among the largest countries in the world. It is a developed country with high
per capita income and Gross Domestic Product. This report discusses about the four key
economic indicators that includes GDP, unemployment, inflation and trade. All these economic
indicators are separately examined and analysed to understand the trend of the economy of the
Australia. To make the analysis data on the said indicators for the last five years is being
collected. Under category of trade indicators like terms of trade, current account, net foreign debt
and value of the Australian dollar. Making analysis of the indicators the future trend of the
Australian economy has been predicted. Apart from that the report discusses three economic
issues of the economy of the country that the country will be facing in the next 12 months. Thus,
the report provides a complete overview of the Australian economy along with the discussion on
the concerned issues of the country affecting the economy in the current period.
Discussion
Key Economic Indicators of Australia
Every economy in the world is reflected by key economic indicators. It is the indicators
that provide the truest possible overview of an economy. To understand the condition of past or
present of an economy it is necessary to look at its indicators. The economic indicators also help
to predict the future scenario of an economy (Ajmera and Clinton 2016). Likewise, to understand
the economic condition and existing issues affecting the country a thorough analysis of GDP,
unemployment, inflation and terms of trade have been made in the following sections.

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Gross Domestic Product
The gross domestic product of Australia in 2018 was $1.432 trillion. The value has grown
after 2016. In the last five years the lowest GDP of the country was in 2016 and was recorded as
$1.21 trillion. Looking at the values of the GDP it can be said that the country is economically a
large country. However, it is important to observe the growth in GDP to make the trend analysis.
Thus, from the figure given below it can be seen that the GDP growth rate in Australia has a
downward trend if the data of last five years are considered (Fraumeni 2017). The most
astonishing part is that even after being such a prospective country the growth rate remained
below 1%. The lowest growth rate has been recorded in 2016 and is as low as 0%. The highest
average growth rate in the last five years was recorded in 2015. After that it has kept on
declining and that has caused the trend line to be downward sloping. Hence, it is evident that the
country is struggling economically.
Figure 1: GDP growth rate
Source: (Tradingeconomics.com 2019)

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Therefore, it is important to consider the other economic indicators to find out whether
this downward trend in GDP is due to large size of the economy or due to some economic illness
that the country is going through.
Inflation
Australia is a country that has kept the inflation rate low for a long time. It has also
survived the financial crisis of 2008-2009 and avoided its adverse effects quite tactfully. The
industries of the country has supported it strongly during that period. Inflation arte in Australia
has always been low and it is evident from the fact that it is one of the most successful country
that has implemented the policy of inflation targeting (Khatoon 2015). Thus, it is quite natural
that the inflation rate of the country will remain under control. In figure 2, it is prominent that the
inflation rate of Australia in the last five years has been expectedly low. The average inflation
rate was below 2%.
Figure 2: Inflation rate
Source: (Tradingeconomics.com 2019)

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The inflation rate however is more now than it was in 2015. During 2016, the inflation
rate touched the 1% mark. Even, if the inflation rate has been quite low for the last five years it
depicts an upward trend. It means that the price level of the economy is rising. Low inflation rate
is good but too low as in case of Australia is not desirable as it creates a low expectation for
wage increment. It is evident from data that real wage growth in Australia has been sluggish for a
quite a period of time now. Hence, it can be inferred that due to low rise income consumption
and market demand is also low that has pulled the price level down and thereby inflation rate
low. Therefore, low inflation rate might not be due to high productivity but possibly due to
stagnating economy of the country. However, an upward trend suggests that the inflation rate in
future might increase and reach a stable level.
Unemployment
National average data show that unemployment rate is low in Australia and the country is
able to keep in down for considerable amount of time. From figure 3 it is clearly observable that
the unemployment rate in Australia has taken a declining path over the years.
Figure 3: Unemployment rate

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Source: (Tradingeconomics.com 2019)
During 2015, the unemployment rate was much higher in Australia in comparison to the
present time. The unemployment rate was over 6% in 2015and in 2019 it is 5.2%. Hence, one
should argue that the country has done well keeping its unemployment rate low, but the
unemployment rate given in the figure show the national average rate of unemployment. On the
other hand, it has been observed that if regional unemployment rate is considered the
unemployment rate varies widely from region to region (Kroft et al. 2016). In some regions it is
low while in some it is high. In 2018 the unemployment rate in Queensland was recorded as high
as 14%. Thus, the wide regional differences in unemployment rate suggests that it is hard to
predict the economic condition of the country just by looking at the national average
unemployment rate.
Trade
Trade is an important part of an economy and is no exception in case of Australia. The
country is among the top exporters when goods like mining products and dairy products are
considered. Mining product earn large amount of revenue for the country from export sector.
Australia also imports various products from other countries. Hence, the data on different types
of data trade are being studied and it is found that the terms of trade in the country is pleasant
and thus it is favouring the country in the desirable manner. In the data share in the given figure
4 below it can be observed that the terms of trade of Australia has improved in the last five years
and it is evident from the trend that in future it will improve further. A good terms of trade index
helps to infer the notion that the trade relationships of the country is whether good or not
(Schmitt‐Grohé and Uribe 2018). Apart form that the current account and net foreign debt gives

8Australian Economy
idea about the economy of the country too. Considering figure 5 it is clear that the current
account of Australia was not pleasant as in the year before 2019 the current account was
recorded as negative that means the country is earning less and spending more by participating in
trade. However the upward trend and positive value in 2019 suggests that the current account
might improve for Australia in near future.
Figure 4: Terms of trade
Source: (Tradingeconomics.com 2019)

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Figure 5: Current account
Source: (Tradingeconomics.com 2019)
Three major issues
The stagnating economy of Australia is not a sudden thing that is happening to the
county. It is actually happening for a long time now. The major contributors to this sluggish
condition are agricultural drought, declining housing market and saturating mining industry.
Agricultural produce contributes 3% to the GDP and mining industry contributes 7%. Thus, it is
clearly evident that any downturn in these industries affects the economy of Australia
significantly. In the last drought in 2018 the yearly gross produce in farms sector decreased by
15% (Aicd.companydirectors.com.au 2019). The recent drop in demand in iron ore from China
has reduced the iron ore export from Australia causing the mining industry to decline and apart
from that lack of skilled labour, falling yield of mine and less discovery of new mines affecting
the industry adversely (ABC News 2019). Moreover, the housing market is also struggling due to
lack of buyer that pushes the price of the market down and causing stagnation in the market.
However, it is expected that these adversities would not last for long because export demand is

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going to rise in future, housing price has stopped falling and has started to rise again and the
agricultural sector is reviving too. Thus, it is expected that the economy will improve in the
future given good performance from other sectors.
Conclusion
It can be inferred from the above discussion that the key indicators are good indicators of
economic performance of a country but not the most reliable ones because in many cases
discussed above it is observed that the indicators contradict with the true economic condition of
the country. However, in some cases the indicators were truly helpful. Thus, it is necessary to
look at other factors of eth economy along with the indicators to understand the actual economic
condition. Further, three of the major issues that affect the economy of Australia were identified
but it seem that country will successfully come out of the stagnating economic condition and
flourish again.
References
ABC News (2019). After the boom, where are Australia's new mining engineers?. [online] ABC
News. Available at: https://www.abc.net.au/news/2018-06-10/australia-facing-critical-shortage-
of-mining-engineers/9851142.
Aicd.companydirectors.com.au (2019). [online] Aicd.companydirectors.com.au. Available at:
http://aicd.companydirectors.com.au/membership/company-director-magazine/2018-back-
editions/october/economist-the-big-dry.
Ajmera, R. and Clinton, A., 2016. Current Employment Statistics data and their contributions as
key economic indicators. Monthly Lab. Rev., 139, p.1.

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Fraumeni, B.M., 2017. Gross domestic product: Are other measures needed?. IZA World of
Labor.
Khatoon, S., 2015. Inflation Growth Dilemma. Available at SSRN 2557301.
Kroft, K., Lange, F., Notowidigdo, M.J. and Katz, L.F., 2016. Long-term unemployment and the
Great Recession: the role of composition, duration dependence, and nonparticipation. Journal of
Labor Economics, 34(S1), pp.S7-S54.
Schmitt‐Grohé, S. and Uribe, M., 2018. How Important are Terms‐Of‐Trade
Shocks?. International Economic Review, 59(1), pp.85-111.
Tradingeconomics.com (2019). Australia Current Account | 2019 | Data | Chart | Calendar |
Forecast | News. [online] Tradingeconomics.com. Available at:
https://tradingeconomics.com/australia/current-account.
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 Terms of Trade | 2019 | Data | Chart | Calendar |
Forecast | News. [online] Tradingeconomics.com. Available at:
https://tradingeconomics.com/australia/terms-of-trade.