Economic Analysis: Australia's Performance and Future Prospects

This report provides a comprehensive analysis of the Australian economy, focusing on key economic indicators from 2015 to 2019. The analysis includes an examination of the Gross Domestic Product (GDP) growth rate, revealing a declining trend that suggests economic stagnation. The report also assesses Australia's trade performance, noting improvements in terms of trade and current account, but also a growing external debt. Furthermore, the report analyzes inflation, which has remained low, potentially leading to economic stagnation, and unemployment, which has decreased nationally but varies among states. The analysis indicates that Australia may face a recession in the next twelve months, along with potential declines in foreign investment and Australian dollar depreciation, based on the trends of these economic indicators. The report concludes that the country is likely to experience economic stagnation and potentially a recessionary phase in the near future.

Running head: Australian Economy
Australian Economy
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Running head: Australian Economy
Abstract
The report discussed the performance of the key economic indicators of Australia and thereby
assessed economic condition of the country and future possibilities and economic happenings
that the country might face. From the analysis of the GDP it is found that the declining GDP
growth rate of the country has been suffering that would contribute adversely to the economy of
the country. However, condition trade found to somewhat dwindling as the terms of trade and
current account has improved but external debt deprived and would impact the country in mixed
ways depending upon intensity of the condition the parameters are going through. The
unemployment rate has been found to be declining nationally but there exists skewed
relationship among the unemployment rate of states. Additionally, the inflation rate has showed
growth in the last five years but even though the average inflation rate during the same period
remained below 2%, which is not a good indication for country. Prolonged period of low
inflation rate in most cases pushes a country in economic stagnation and that might lead to
recession too. Therefore, the analysis of the important economic indicators of the country leads
to the inference that in the next twelve months the country might be entering into a recession.
Along with that there is possibility of decline in foreign investment and Australian dollar
depreciation. Thus, the indicators suggests that Australia is going to face adverse economic
conditions in near future.

Running head: Australian Economy
Table of Contents
Introduction......................................................................................................................................4
Economic Indicators........................................................................................................................4
Analysis of Gross Domestic Product...........................................................................................4
Analysis of Trade.........................................................................................................................5
Analysis of Inflation....................................................................................................................7
Analysis of Unemployment.........................................................................................................7
Economic Issues in Australia...........................................................................................................8
Conclusion.......................................................................................................................................9
List of Reference............................................................................................................................10

Running head: Australian Economy
Introduction
The report discusses about the economy of Australia with emphasis on the economic
indicators that are the key to measure the condition of the economy of the country. The key
economic indicators based on which the discussion is being done on are gross domestic product,
unemployment, trade and inflation. The parameters taken for the analysis of the indicators are
GDP growth rate, per capita GDP, unemployment rate, inflation rate, terms of trade and external
date. Analysing the above parameters the report discusses about three economic problems that
the country might face in the next one year. Therefore, the report gives the critical overview of
the economic condition of Australia.
Economic Indicators
The trend analysis of the key economic indicators based on the data of last five years that
is from 2015 to 2019 has been done in the following paragraphs to assess the path of the
Australian economy.
Analysis of Gross Domestic Product
Graph 1: Gross
Domestic Product Growth Rate
Source: (Tradingeconomics.com 2019)
Gross domestic product is the total output amount of final goods and services that is
produced by a country during a specified time period. Australia is considered among the
developed countries and thus the GDP value has been always high and thus it is not possible to
understand the economic path of the country by looking at the GDP values only. Thus,
considering GDP growth rate values of the last five years it can be observed that the growth rate

Running head: Australian Economy
was around 0.9% during the initial period of 2015. After that in the last five years, with
continuous fluctuation the GDP growth rate declined and reached around 0.5% in 2019. During
this 5 years phase the growth rate touched the 1% growth rate mark twice, one in 2017 and the
other in 2018, whereas it touched the zero mark in the end of 2016. The graph shown above also
depicts the trend line of growth rate of GDP and it is given as downward sloping straight line,
which means that the growth rate is declining over the years. Apart from that the growth rate is
so low that it indicates stagnating condition of the economy of the country.
Analysis of Trade
Australia is an open economy and thus it participates in trade with many countries in the
world. It is the leading exporter of agricultural and mining products and thus the trade is an
important economic indicator that provides significant insights of the country.
Graph 2: External Debt of Australia (in AUD million)
Source: (Tradingeconomics.com 2019)
The external debt of Australia has grown during the last five years and it is evident from
graph 2. In 2015, the external debt was just over $1800000 million (AUD) and with gradual
increase it reaches around $2150000 in 2019. The trend also depicts an increasing value of
external debt that is unhealthy for the growth of the country.
Again, looking at the terms of trade index of Australia as shown in graph 3 it can be
observed that the terms of trade of the country has improved from 2015 to 2019. It is evident that
in 2015 the terms of trade index was around 80 and it has increased and touched the 100 mark in
2019 and trend suggests that the index will grow further in coming years (Forenero, Kirchner and

Running head: Australian Economy
Yany 2016). Thus, due to this it can be inferred that the trade relations will improve and the
country will make more gains from trade.
Graph 3: Terms of
Trade
Source: (Tradingeconomics.com 2019)
From graph 4 it can inferred that the trade sector of the country is improving because the
trend line of the last five years of current account is given as upward sloping curve. However, the
current account value was negative from 2015 to initial period of 2019. In the later part of 2019
the current account rose above zero point. Hence, it is expected that the current account will
improve further in future and remain in positive mark. Therefore, the trade sector of the country
is improving but slowly.
Graph 4: Current Account
Source: (Tradingeconomics.com 2019)

Running head: Australian Economy
Analysis of Inflation
Inflation rate of Australia has been low always since many years and it is argued that the
reason is the inflation targeting policy of the economy. To assess the performance of the
economy in respect of inflation. Graph 5 depicts that the inflation rate is growing for Australia as
per trend.
Graph 5: Inflation Rate
Source: (Tradingeconomics.com 2019)
It is seen that the trend line is upward sloping but from the value of inflation rate is quite
low and the average rate of inflation in eh last five years is below 2%. Inflation rate at this level
occurs pushes an economy towards stagnation as with low level of inflation rate wage growth
expectation will be low. As a result, the aggregate demand will low and thus affects the
economic growth of the country.
Analysis of Unemployment

Running head: Australian Economy
Graph 6: Unemployment Rate
Source: (Tradingeconomics.com 2019)
The graph above shows the trend of unemployment rate in Australia from 2015 to 2019.
Unemployment rate in Australia was around 6.3% in 2015 and with declining rate during the
phase of 2015 to 2019 the unemployment rate has reduced to 5.2%. It is evident from the graph
that with continuous fluctuation the rate of unemployment rate has declined and thus the trend
line associated with the unemployment rate takes a down sloping shape (Bishop and Cassidy
2017). Therefore, it can be inferred that the unemployment rate would go low further in future.
However, the graph represent national unemployment rate in Australia that possible fails to
reflect the regional unemployment condition of the country. In table 1 it can be seen that there is
disparity in unemployment rate among the states in Australia and it shows that there is
unemployment problem in the country even after low national rate of unemployment.
Table 1: State-wise Unemployment Rate in 2019 in Australia
Source: (Lmip.gov.au. 2019)
Economic Issues in Australia
The above analysis of the important economic indicators suggest that the economy might
going to face problems in the coming year. Low unemployment rate and inflation rate seems to
be good for a country but the rates are too low for a country to achieve stable economic growth
because low inflation rate affects the wage growth adversely and thereby aggregate demand of

Running head: Australian Economy
the country. On the other hand, too much low unemployment rate would make industrial sector
less productive hampering the growth of the economy. Further, the low GDP growth rate
suggests economic stagnation (Taylor and Tyers 2017). The terms of trade and current account
has shown improvement but the external debt has been increasing and has increased by
significant amount from 2015 to 2019. Therefore, looking at the indicators it can be said that
foreign investment will be lower due to increased external debt and thereby fall in credit
worthiness. Australia might be entering into a recession in next twelve months as suggest by the
GDP growth rate, unemployment rate and inflation rate. Once the economy enters the recession
the currency of the economy depreciates and thus with decline in value of Australian dollar the
growth of the economy will further get hampered.
Conclusion
From the above discussion on the economic indicators and their analysis based on the
economy of Australia it is seen that the most of the indicators suggesting that the economy of the
country will face economic stagnation in future and might also experience a recessionary phase.
It has been found from the trend analysis that most of the important economic indicators are
suffering from dwindling conditions. Thus, due to these conditions of the key economic
indicators Australia might face recession, currency depreciation and declining foreign
investment.

Running head: Australian Economy
List of Reference
Bishop, J. and Cassidy, N., 2017. Insights into low wage growth in Australia. RBA Bulletin,
March, pp.13-20.
Fornero, J.A., Kirchner, M. and Yany, A., 2016. Terms of trade shocks and investment in
commodity-exporting economies. Banco Central de Chile.
Lmip.gov.au. (2019). Welcome to the Labour Market Information Portal.. [online] Available at:
http://lmip.gov.au/default.aspx?LMIP/LFR_SAFOUR/LFR_UnemploymentRate.
Taylor, G. and Tyers, R., 2017. Secular stagnation: Determinants and consequences for
Australia. Economic Record, 93(303), pp.615-650.
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.

Running head: Australian Economy
Tradingeconomics.com (2019). Australia Unemployment Rate | 2019 | Data | Chart | Calendar |
Forecast. [online] Tradingeconomics.com. Available at:
https://tradingeconomics.com/australia/unemployment-rate
Tradingeconomics.com. (2019). Australia Total Gross External Debt | 2019 | Data | Chart |
Calendar. [online] Available at: https://tradingeconomics.com/australia/external-debt.