Economics for Decision Making: Australian Economy Report 2018

This report provides an analysis of the Australian economy, focusing on its performance in August and September of 2018 and comparing it to the same period in 2017. The report examines four key macroeconomic variables: GDP growth, unemployment, inflation, and trade. It highlights the annual GDP growth rate, which reached 3.4% in 2018, driven by a strong labor market and favorable monetary policies. The report also discusses the unemployment rate, which remained above 5% despite increased employment, and the inflation rate, which rose due to increasing gas and electricity prices. Furthermore, it analyzes Australia's trade, noting increased exports, particularly for liquefied natural gas, and the impact on the terms of trade. The report concludes by identifying inflation, household debts, and the current account deficit as the major challenges facing the Australian economy, emphasizing the need for appropriate policy interventions.

Running head: ECONOMICS FOR DECISION MAKING
Economics for decision making
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Author Note

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Abstract:
This report is going to represent the economic performance of Australia, especially on August
and September of 2018. After discussing this, the report will also compare the Australian
economy with that of August 2017. For doing this, the report has selected four macroeconomic
variables, namely, GDP growth rate, unemployment along with inflation as well as trade to
discuss and compare the economic activities.

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Table of Contents
Introduction:....................................................................................................................................3
Annual GDP growth of Australia:...................................................................................................3
Unemployment in Australian economy:..........................................................................................4
Inflation rate:...................................................................................................................................5
Trade of Australia:...........................................................................................................................7
Explanation on three major issues of Australian economy:............................................................8
Conclusion:......................................................................................................................................9
References:....................................................................................................................................10

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Introduction:
In 2017, the Sydney Morning Herald, a leading newspaper of Australia, published an
article stating that various economists have provided their different overviews regarding the
economic performance of Australia in 2017 through considering economic activities of previous
year (Meyer 2018). According to some economists, Australia’s gross domestic product (GDP) is
expected to increase in coming year due to increasing interest rates of the Reserve Bank of
Australia (RBA). However, some other economists have stated that the real GDP growth of
Australia did not change between 2016 and 2017, as the RBA cut its interest rates
(Tradingeconomics.com 2018). Supporting this statement, other economists have stated that
investment in business sectors could be reduce further due to slow increase in consumption
expenditure as well as limited housing construction, which further can happen due to weak
labour market and small increment in wages.
Thus, to understand about the actual economic condition of Australia, this report focuses
on economic performance of Australia on August and September, 2018 for comparing it with the
same of August 2017. For doing so, the report will divide the ensure discussion under four
headings, which are, annual GDP growth of Australia, unemployment, inflation and trade.
Annual GDP growth of Australia:
The RBA has forecasted that both international as well as national economy can
experience significant economic growth in come years, while other macroeconomic factors may
remain almost stagnant. During the 1st quarter of this year, Australia’s economic growth has
performed comparatively well than it was predicted. Through following this trend, the annual
GDP growth of Australia becomes 3.4 percent during recent period (Hutchens 2018). In this
context, strong labour market and favourable monetary policies have played significant role to

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influence income and consumption expenditure of this country to increase further. Moreover,
investment in on-mining sectors along with housing market and public infrastructure has
stimulated the aggregate demand of Australia in recent months of 2018. Thus, with the help of
potential activities, the Australian economy is going to develop its economic performance
further. The annual growth rate of Australian GDP n 2017 was around 2.4 percent while in third
quarter, this rate was around 2.8 percent. Based on annual GDP growth of 2016 and 2017, t can
be stated that the country did not experience any noticeable GDP growth rate.
Figure 1: Annual GDP growth of Australia
Source: (Tradingeconomics.com 2018)
In above figure it can be seen that the economic growth of this country increased
significantly during August 2017 and remained above 2.6 percent on an average
(Tradingeconomics.com 2018). Hence, Australia has performed well to develop its economic
growth over the year though increasing demand and household consumption in domestic market.
Unemployment in Australian economy:
During the June quarter of this year, salaries and wages in Australia has increased by 0.7
percent and has remained around 4.5 percent over the year. this in turn has increased the

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employment rate of this country above 4.8 percent. However, according to some economists,
wage rate has remained below the expected level and consequently real wages growth has
increased by 0.3% only over the year (Reserve Bank of Australia 2018). In August 2018, labour
market has developed by small proportion due to increasing demand for workers in domestic
market while in previous year, employment level was comparatively high (Marks 2018).
However, since the last year, employment level of Australia has remained higher than the
country’s average growth rate of total work force (Qian and Xing 2018). Moreover, total
participation rate workers within labour force have increased further though the unemployment
rate has still remained above 5 percent during August and September 2018.
Figure 2: Australia's unemployment growth rate
Source: (Tradingeconomics.com 2018)
Thus, the above figure has represented that the unemployment rate in August 2018 has
remained comparatively low than the same month of previous year.
Inflation rate:
To understand the present economic activity of Australia, the report has considered
another macroeconomic indicator, which is, inflation rate. The country has experienced higher

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inflation rate during present year (Choi and Cook 2018). For instance, country’s nominal wages
have increased by 1.8 percent during June quarter while inflation rate has remained at 1.5%.
Thus, the wage growth rate in real terms has become only 0.3% (Reserve Bank of Australia
2018). However, the RBA has anticipated that the inflation rate can reduce further, as the
country’s administrative sector is reducing prices for the services they provide to the citizens. As
a result, inflation rate can remain around 1 ¾ percent for the current period of 2018 (Bernanke,
Laubach, Mishkin and Posen 2018). However, in July, this rate has increased and become 2.1
percent. In August 2017, this rate was around 2 percent (Tradingeconomics.com 2018). The
chief reason behind this increasing price level is increasing prices for gas and electricity in both
domestic as well as in international markets.
Figure 3: Australia's Inflation rate
Source: (Tradingeconomics.com 2018)
According to figure 3, inflation rate of Australia decreased in August 2017 and remained
between 1.8 percent and 1.85 percent. After that, the rate became stagnant at 1.9 percent during
the first quarter of 2018. However, it has started to increase significantly during since the March
quarter. However, due to fall in service prices, this inflation rate is expected o reduce again.

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Trade of Australia:
Australia can increase its exports in recent months, especially, for the liquefied natural
gas (LNG) due to its huge production. In addition to this, production of other agricultural
products as well as mining industry, including iron ore and coal, can stimulate the country’s total
exports by large extend (Qi and Zhang 2018). Hence, terms of trade for the country develop
significantly. In 2017, the country also experienced positive terms of trade.
Figure 4: Terms of Trade of Australia
Source: (Tradingeconomics.com 2018)
According to figure 4, it can be stated that the terms of trade (ToT) of Australia decreased
after the July quarter in 2017. After this phase, ToT has started to increase again and has reached
89.10 Index Points during the first phase of 2018. However, in the following quarter, this trend
has started to fall again. And in July it has become 87.70 Index Points (Tradingeconomics.com
2018). However, the overall ToT has remained above 86 Index Points indicting that a positive
environment for Australia to doing international trade.
Though the international trade of Australia has remained favorable over the year, the
current account balance of this country has experienced deficit over the year. In the second

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quarter of 2018, the value of current account deficit has become AUD 13.47 billion while in the
previous quarter has remained AUD 11.678 billion. This implies that the trade balance surplus on
goods and services has reduced from AUD 532 billion to AUD 2.812 billion
(Tradingeconomics.com 2018). In addition to this, Australian government has earned huge
amount of public debt over the year, as the rate has increased steadily. In the first quarter of
2018, the country has obtained public debt above AUD 2000000 million. Moreover, it can be
expected that the country’s gross external debt is going to increase further. The value of
Australian dollar in terms of U.S dollar has decreased over the year. In the starting of September
2018, AUD 1 has become USD 0.72 while this exchange rate was high during 2017. Hence,
decreasing value of Australian dollar in international market can create huge problems.
Explanation on three major issues of Australian economy:
The above discussion can point out three major issues that the Australian economy can
experience in coming year. Moreover, the economic condition of the country for the next twelve
months can also be described. The three major problems of this country are inflation, household
debts and deficit in current account. According to the RBA, inflation rate is going to increase
further by 2.4 percent (Hocquette et al. 2018). However, this growth could be stable in future.
However, the economy can experience an uncertainty due to global inflation. This phenomenon
as well as increasing GDP of Australia can cause value depreciation of Australian dollar in
coming months (Ellis 2018). Moreover, increasing debt in both internal and external market
along with depreciation of Australian dollar can lead the current account balance of Australia to
reduce further (Forbes, Hjortsoe and Nenova 2017). Hence, it is essential for the policy makers
of Australia to implement appropriate policies to control these adverse economic situations.
Otherwise, the mortgage demand can increase further due to economic uncertainty and

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consequently the economy can experience lower rate of economic growth in future along with a
higher amount of public debt.
Conclusion:
This section describes the entire economic activity of Australia briefly. The above
analysis has represented that economic growth of Australia along with its unemployment level
have increased over the year, since August 2017. Moreover, the country has also experienced a
favorable terms of trade. This implies that the country has huge opportunities to trade with other
countries in international market. On the contrary, increasing about of debt in international
market along with currency depreciation and deficit in current account balance can adversely
affect the economic growth of Australia.

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References:
Bernanke, B.S., Laubach, T., Mishkin, F.S. and Posen, A.S., 2018. Inflation targeting: lessons
from the international experience. Princeton University Press.
Choi, W.G. and Cook, M.D., 2018. Policy conflicts and inflation targeting: the role of credit
markets. International Monetary Fund.
Ellis, L., 2018. Where is the growth going to come from?. Economic Papers: A journal of
applied economics and policy, 37(1), pp.4-16.
Forbes, K., Hjortsoe, I. and Nenova, T., 2017. Current account deficits during heightened risk:
menacing or mitigating?. The Economic Journal, 127(601), pp.571-623.
Hocquette, J.F., Ellies-Oury, M.P., Lherm, M., Pineau, C., Deblitz, C. and Farmer, L., 2018.
Current situation and future prospects for beef production in Europe—A review. Asian-
Australasian journal of animal sciences, 31(7), p.1017.
Hutchens, G. 2018. Australia's economy hits 3.4% annual growth rate, exceeding expectations.
[online] the Guardian. Available at:
https://www.theguardian.com/business/2018/sep/05/australias-economic-growth-exceeds-
expectations-at-34?
utm_source=esp&utm_medium=Email&utm_campaign=Guardian+Today+AU+-
+collection&utm_term=284931&subid=20797742&CMP=GTAU_collection [Accessed 6 Sep.
2018].
Marks, G.N., 2018. Do the labour market returns to university degrees differ between high and
low achieving youth? Evidence from Australia. Journal for Labour Market Research, 52(1), p.5.
Meyer, J. 2018. Economists deeply divided over Australia's economic path in 2017. [online]
The Sydney Morning Herald. Available at:

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https://www.smh.com.au/business/markets/economists-deeply-divided-over-australias-
economic-path-in-2017-20170207-gu72ev.html [Accessed 6 Sep. 2018]. – The main article
Qi, C. and Zhang, J.X., 2018. The economic impacts of the China-Australia Free Trade
Agreement-A general equilibrium analysis. China Economic Review, 47, pp.1-11.
Qian, W. and Xing, K., 2018. Linking Environmental and Financial Performance for Privately
Owned Firms: Some Evidence from A ustralia. Journal of Small Business Management, 56(2),
pp.330-347.
Reserve Bank of Australia 2018. Economic Outlook | Statement on Monetary Policy – August
2018 | RBA. [online] Reserve Bank of Australia. Available at:
https://www.rba.gov.au/publications/smp/2018/aug/economic-outlook.html [Accessed 6 Sep.
2018].
Tradingeconomics.com 2018. Australia - Economic Indicators. [online] Tradingeconomics.com.
Available at: https://tradingeconomics.com/australia/indicators [Accessed 6 Sep. 2018].