The Analysis of Australian Economy through Macroeconomic Indicators
Abstract:
The economic prospects of the nation are very crucial part, since it will decide whether the nation is working in right direction or not. This study offers a brief summary of the economic situation across economic indicators. The initial part of the report depicts trends in four measures, namely GDP growth, unemployment, inflation and the current account balance. Each of the measures is either rising or declining dramatically in the current year as a result of the pandemic. Similarly, on the other hand, the second part of the report reveals the three big problems that the country will face in the next 12 months. The major issues that the report has highlighted are issues in Tourism sector, lower spending and decrease in international output.
Introduction:
The economic measures addressed in this report highlights the economic perspectives and aspect of the nation, where it stands in this current time and what is the future prospects. The economic measures used in this report are GDP growth rate, Inflation, CPI, Unemployment Rate and Current Account Balance. In current times, the sudden attack of COVID-19 has drastically affected the world’s economics and financial sectors. The complete lockdown all over the world has created a type of distress among the people and nations which badly influence the economics. The report will present the current scenario of the Australian economic sector and overall growth. Moreover, it also represents five years comparison based on four key economic measures such as GDP growth, Unemployment Rate, Inflation and Current Account Balance. In the last, this reports also do prediction based on the serious concerns that Australia may face in near future due to currently changing environment.
Four Indicators of Australian Economy:
Inflation:
Fig 1: Reserve Bank of Australia (2020a).
The rate of inflation of an economy entails the rise in the prices of goods and services annually. The picture illustrates a graph that shows the inflation rate of Australia yearly as well as quarterly. The inflation rate of the country has been fluctuating since 2015 but its lower than the previous decades. For instance, the inflation rate before 2015 has been above 2% whereas after the year it has been between 1% and 2%. From 2015 to 2020 it has been between these two percentages. In comparison, the year 2020 have the lowest inflation rate that is -0.3% till September
Fig 2: Reserve Bank of Australia (2020b).
In the above graph, the same fluctuations are provided but we will discuss about the current trend rather than comparing the five years. In the history of Australian economy, this inflation rate has been the lowest due to the pandemic which has negatively impacted the economies. Among these economies is the Australian economy that has seen the worst economic output in terms of this macroeconomic indicator. This is due to the fact that majority of the population aren’t employed because of which their standard of living has decreased. They couldn’t afford those goods in the current year which they could have easily purchased if the situation was normal. COVID-19 has majorly impacted the economy of Australia, the consumers cannot purchase goods in this interest rate. However, Australian government can change the situation of the country with good policies helping the Australians increase their purchasing power.
Current Account:
Fig 3: Reserve Bank of Australia (2020a)
This macroeconomic indicator entails the rate of imports/exports of commodities and services. This is one of the key elements of balance of payments. The above graph shows current account balance, trade balance and net income balance. For this report, current account balance is important which also shows fluctuations since 1990 but it was lowest between the years 2005 and 2008. During the 2015 it started increasing at a decreasing rate but in the year 2018 it remained constant and was -0.2%. The current account balance in Australia since the start has been in negative values but in the current year it is in positive value that is 1.0%.
Fig 4: Australian Bureau of Statistics (2020a)
The current account balance in the year 2020 has been positive when comparing it with the previous years. By looking through the graph it is significant that for the first time in 30 years (as shown in Fig 3) that the current account balance has been positive. A rise in constant trade surpluses have been the main reason to exponentially increase “exports/interest payments/dividends equation” transforming the current account deficit into a surplus in the current year (Janda, 2019). The transformation started in the end of 2018 and has been increasing till the current year, 2020.
GDP growth:
Fig 5: Reserve Bank of Australia (2020a)
The GDP growth rate of the Australian economy is also fluctuating since years. A trend is observed in the growth rate that is when there is a high increase in the percentage then in the succeeding year the rate would instantly decline. However, from the year 2015 the growth rate hasn’t increased above 3% and has remained between 3% to 1%. In the year 2019, the growth rate was 1.8% and has been constantly decreasing. The decrease in the growth rate was due to the decrease in the household consumption as it was expected it would be higher than the actual rate. The decrease in household consumption despite of a decrease in the household prices have significantly impacted the economic growth of the country in 2019 (Taylor, 2019).
Fig 6: Australian Bureau of Statistics (2020b)
The current account balance till the 3rd quarter of 2020 is -6.3% that is the lowest in the Australian history. This has been due to the pandemic that has taken the world in an instant and has negatively impacted the Australian economy. The international and domestic demand have decline due to the virus and the multiple restrictions by the government. To help the country increase its GDP growth rate the implementation of fiscal as well as monetary policies to guide the economy in order to recover in 2021 (Focus Economic, 2020). The GDP growth rate of the country shouldn’t have dropped this low as the country would have very limited options to recover as Australia’s economy is dependent on education and tourism. If the company doesn’t open its borders for trade or other important sectors then it will be difficult to perform that well.
Unemployment:
Fig 7: Reserve Bank of Australia (2020a)
The last macro economic indicator that shows the overview of the economy is the unemployment rate. The unemployment rate of the country has been fluctuating throughout the year but has been fluctuating under 7% while looking at the above graph. However, since the year 2015 the unemployment rate has been increasing at a decreasing. The unemployment rate is shown by the purple line in the graph. Nevertheless, in the year 2020 it has taken a huge leap forward and is above 12% which is huge. The reason for increasing unemployment rate in Australia before the pandemic was due to cyclically weak demand for labour that resulted in slowly growth in the labour supply along with structural influences that impacts the efficacy of the unemployment labour force when they are coordinated with jobs (Reserve Bank of Australia, 2013).
Fig 8: Australian Bureau of Statistics (2020c)
The unemployment rate in current year has been increasing due to one factor that is the corona virus pandemic. This pandemic has implemented social distancing and shutting down of borders that restricted tourism and international students to study in the country. The employees in mostly all of the sectors are unemployed because they cannot work at home as they are required in the field. The contagious factor of the virus has made it difficult for the country to decrease its unemployment rates.
Three Major Issues:
Tourism:
The major issue that the country would face in the coming year would be to overcome the losses in the tourism sector. The Australian tourism sector has faced a major loss in the sector due to the shutting down of the borders which would prohibit the international tourists from visiting the country, the contagious pandemic virus has made it impossible for the individuals to enter the premises of the country. The rise in the cases of the coronavirus has shaken the government that has forced them to take this decision of shutting the border until there isn’t any case of the virus in the country. Nevertheless, this would hurt the GDP as a good percent of tourism sector contributes to the GDP sector. The succeeding year would have lower tourism despite the fact if the country opens it borders. It would be difficult for the country to overcome what they have lost in 2020 for a few years. It has been predicted that the revenue of the tourism sector would decline by 9.1% in 2021 (Yeoh, 2020). Many of the people are also employed in the hospitality industry which have impacted their jobs, those who are working in night shifts or are part timers because Australia in specific months attracts many tourists but nine months has passed since the beginning of the pandemic and till now the tourism sector is in lockdown.
