Comprehensive Report: Australian Economic Growth, Policies, and Trends

This report provides an analysis of Australian economic growth between 2011 and 2017, examining key economic indicators and policies. It explores the fluctuations in Gross Domestic Product (GDP), highlighting significant changes and trends during the period. The report delves into the impact of monetary policy decisions, particularly the loosening of interest rates by the Reserve Bank of Australia, and their effects on inflation and the housing market. Fiscal policy, including government expenditure and the sale of bonds, is also discussed. The analysis considers the performance of various sectors, such as mining, agriculture, and manufacturing, and how their contributions influenced overall economic growth. The report references several sources to support its findings and provides a comprehensive overview of the economic landscape during the specified timeframe, including the effects of macroprudential policies on the housing market and potential economic downturns. This report offers a clear understanding of Australia's economic performance and the factors that shaped it.

Running head: AUSTRALIAN ECONOMIC GROWTH 1
Australian Economic Growth
Student’s name
Institution

AUSTRALIA 2
Australian Economic Growth
Figure 1: Australia GDP Growth Since 2011 – 2017
The Gross Domestic Product experienced a 58.79% increase between 2011 and 2012
from a GDP of 2.451 to 3.892. However, the GDP fell by 32.19%, and the trend continued up to
2015 that saw a 20.21 percent increase from 2.351 to 2.827 in 2016 ("GDP growth", 2019).

AUSTRALIA 3
There was then a huge 30.74 percent decrease with a GDP that went below that of 2011.
Generally, there was a 20.11 percent decrease between 2011 and 2017 ("Australia Annual GDP",
2019). The country relies heavily on the service sector that contributes to the total GDP up to
65%. However, in recent years, it's economic thrive has been on agriculture and mining that
contribute 2% and 13.5% respectively ("Australia Real GDP", 2019). This is because the country
experienced a decrease in the export of goods and services by roughly 0.7 percent. There was
also a slowdown in the insurance, financial, social assistance, administrative, support among
other services averagely by 1.7 percent, especially in 2017. The weakest growth rate experienced
in 2017, according to the chart above, emanated from a decrease in investments in housing and
modest growth in private consumption; hence, the housing market was adversely affected.
Fishing, agriculture, and forestry had also decreased by 3.2 percent in the second quarter.
Manufacturing sector dropped in the fourth quarter by 1.2 percent. The mining sector, however,
grew by 1.2 percent due to gas and oil extraction. Considering that only the mining sector
recorded a growth, it is therefore evident that the decrease was as a result of a decrease in the
economic activity in the nation.
Monetary policy decisions are expressed as interest rates (Ponomareva et al., 2019).
Since 2011, there is an evident loosening of these policies as well as the Reserve Bank of
Australia as a result of interest rates continually falling had to work with lower amounts for the
cash rates. During this period, inflation went below the normal target of 2-3% and stood at
1.25% in 2017 ("Cash Rate", 2019). According to Harry Scheule (2016), there are high
possibilities of economic downturn when the interest rates fall, and the lending standards are
tightened. Fiscal policy, on the other hand, deals with government expenditure. Within the same
period, government expenditure heightened above the budget. This resulted in the sale of
Government Bonds and financial institutions such as banks were in the frontline to purchase
these bonds (Germaschewski et al., 2019).
Figure 2: Australia Cash Rates Since 2011 – 2017

AUSTRALIA 4
This, in turn, led to a decrease in the supply of money borrowed at low interest rates. This
hence affected the housing market because of the high-interest rates imposed. If the interest rates
are lowered, this means there is a high demand for loans or credit given members of the public
property purchasing power, which include housing. According to Steve Keen (2017), such
occurrences could lead to heightened bankruptcies as well as recession. A rise in dwelling
investment has a positive impact on GDP growth. A downturn in the major sectors that oversee
the success of the Australian economy, such as mining could imply a rise in jobless rates and
consumer confidence, could also be affected. Macroprudential loosening or tightening as a
financial regulation approach, in this case, aimed to reduce the risk of house market crash limits
access to credit for purposes of dwelling investments (Perry et al., 2018). The rise in the cash rate
would, therefore, lead to modest or slow growth in the housing market. Therefore, economic
growth will be immensely affected, and the GDP may greatly fall with a continued fall in the
housing market, as seen in 2017.
References
Australia Annual GDP (2019). Retrieved from https://tradingeconomics.com/australia/gdp-
growth-annual
Australia Real GDP (2019). Retrieved from
https://www.ceicdata.com/en/indicator/australia/real-gdp-growth
Australia Cash Rate. (2019). Retrieved from https://www.rba.gov.au/statistics/cash-rate/
Germaschewski, Y., Horvath, J., & Zhong, J. (2019). Jawboning on the Exchange Rate:
Evidence from Australia. Available at SSRN 3356115.
GDP growth. (2019). Retrieved from https://data.worldbank.org/indicator/ny.gdp.mktp.kd.zg

AUSTRALIA 5
Keen, Steve. (2017). Can we avoid another financial crisis? John Wiley & Sons.
Perry, E., Doherty, E., & Jackman, B. (2018). Money in the Australian Economy. Reserve Bank
of Australia Bulletin, September.
Ponomareva, N., Sheen, J., & Wang, B. Z. (2019). Does Monetary Policy Respond to
Uncertainty? Evidence from Australia. Evidence from Australia (April 3, 2019).