Macroeconomics Report: Australia Economic Analysis - RMIT University

This report provides an overview of the Australian economy, focusing on current events and their potential impact. It highlights the Monetary Policy Committee's decision to hold the cash rate at 1.5% and the potential for a rate cut due to global and domestic growth concerns. The report analyzes GDP, noting the highest growth in transport services and insurance. It examines the labor market, identifying trends in employment across different occupations and genders. Price movements, particularly housing inflation, are discussed. The report identifies the slowdown in China as a significant risk to the Australian economy, given China's importance as a trade partner and consumer of Australian commodities and higher education exports. The report concludes that a continued slowdown in China could significantly impact Australia's GDP growth.

RMIT University
MACROECONOMICS
STUDENT ID:
[Pick the date]

Australia Economic Progress Report
Current Events
In Australia, the cash rate has been held at 1.5% by the MPC (Monetary Policy Committee)
since 2018. All through 2018, it was expected that MPC would increase the cash rate by 25
bps. However, this has not materialised as the concerns about both global growth and
domestic growth have amplified. This is evident from the latest MPC minutes released in
March which highlight the impact of US-China trade war along with slowing growth in
China. In other parts of the world also, growth is slowing with Australia being no
exception(RBA, 2019). This has led to a change in policy stance which potentially could lead
to lowering of cash rate to 1.25% later this year.
This lowering of cash rate would be transmitted in the system in the form of reduced interest
rate. The impact of the same is represented as follows (Barro, 2017).
 The demand for loans would increase which would give a boost to aggregate demand.
This in turn would lead to higher consumer spending. This would improve the
capacity utilisation levels and lead to new private capital expenditure. Also, there
would be a lowering of unemployment since new jobs would be created.
 On account of higher aggregate demand in the short term, there would be an increase
in the inflation rate. This could potentially have an impact on the currency exchange
rate also.
GDP Highlights
The relevant chart obtained from excel is pasted below.

With regards to the most recent quarter, consumption categories with the highest growth rate
are as follows.
 Transport Services
 Insurance and Other Financial Services
Labour Market Highlights
The relevant chart for the unemployment rate comparison of the two genders and combined is
obtained from excel and pasted below.

 For the most recent quarter, occupation with the highest percentage change in persons
employed is “Community and Personal Services”.
 A gender concentration switchover is witnessed for the “Professionals” occupation
category.
 “Professionals” is the occupation category where for the entire period, the gender
difference in terms of person employed is the lowest.
 “Clerical and Administrative Workers” is the occupation category where for the entire
period, the proportion of female employment is higher than the corresponding male
employment.
Price Movements
The inflation rate for the respective groups from September 1973 onwards has been obtained
using Excel and is pasted as follows.
Housing inflation has seen the highest variability in the 1990’s amongst the four given heads
of inflation.
Risk Outlook
In the current uncertain global environment, there are a number of risks facing Australian
economy. Amongst those the greatest risk would be posed by the current slowdown fears

from China. The economic data from China indicates towards lower GDP growth and the
Chinese administration has already announced stimulus package to provide a boost to the
economy (Laursen, 2019).
The importance of the Chinese economy for Australia can be explained as follows (Chau,
2019).
 China is the largest trade partner of Australia which accounts for about 30% of the
total exports of Australia. A slowdown in China would adversely impact exports.
 A majority of Australian exports comprise of commodities particularly coal and iron
ore. The prices of these commodities are dependent on demand and supply forces.
China is the largest consumer of a majority of these mineral commodities and hence
slowdown would push down the global commodity prices.
 Australia gets a large inflow of international students from China which contribute
significantly to the more than $ 30 billion higher education exports. A slowdown in
China would impact this segment also.
 In the recent times, there has been a significant increase in the spending by Chinese
tourists who visit Australia. In 2017-2018, this amount exceeded $ 10 billion.
 Based on the above aspects, it is evident that if the slowdown in China continues, then
it will cause significant decline in the GDP growth rate owing to the lowering net
exports and drop in public and private spending.

References
Barro, R. (2017) Macroeconomics: A Modern Approach (4th ed.). London: Cengage
Learning
Chau, D. (2019) Australia's fortunes are linked to China's economy — for better or worse,
Retrieved from https://www.abc.net.au/news/2019-01-15/china-economy-slowdown-
will-affect-australia/10716240
Laursen, L. (2019) Why China Just Injected $83 Billion into Its Economy, Retrieved from
http://fortune.com/2019/01/16/china-economy-83-billion-stimulus/
RBA (2019) Minutes of the Monetary Policy Meeting of the Reserve Bank Board, Retrieved
from https://www.rba.gov.au/monetary-policy/rba-board-minutes/2019/2019-03-
05.html