ECO10250: The overview of the key economic indicators; A case study of Australia
Abstract:
The economic outlook of the country is important to uphold because it would determine whether the country is functioning well or not. This is shown by this report which would provide a brief overview of the economic situation through economic indicators. The first half of the report shows trends of four indicators that are GDP growth, Unemployment, Inflation and Current Account Balance. Each of the indicators are either increasing or decreasing extremely in the current year due to the pandemic. On the other hand, the second half of the report shows the three major issues the country would face in the coming 12 months. The issues are lower global output as the majority of the importers of Australian products are East Asian countries, the second is the decrease in consumer spending due to the rise in unemployment rate making it hard for the consumers to buy products or services. The third one is the external sector in which few sectors are impacted due to the shutting down of Australian borders.
Introduction:
The economic indicators showcase the overall economic situation of the country and where the country is heading in the future. The economic indicators include GDP, GDP per capita, GDP growth rate, Inflation, CPI, Unemployment Rate, Current Account Balance and many more. The current COVID-19 situation has shaken the world and have impacted every country globally. There have been strict lockdowns in the world as the virus is contagious and can spread easily. The report will demonstrate the economic situation of Australia currently and a comparison would be presented of five years using the four major economic indicators that are GDP growth, Unemployment Rate, Inflation and Current Account Balance. Moreover, a brief prediction would be described regarding the major issues that the country would face in the coming future.
Four Indicators:
GDP growth:
Fig 1: Australian Bureau of Statistics (2020a)
GDP stands for Gross Domestic Product; this is an economic indicator that shows that how much has the country grew in terms of products or services that are produced in a specific period of time within the geographical boundaries of the country. In case of Australia, there has been immense changes in the GDP growth rate of the country. The above graph shows a trend from 2012 to 2020 that is the period of total eight years, the GDP growth rate was fluctuating but remained in positive values till the year 2020. There can be seen a slight decline in the first quarter of 2020 and then the rate was stagnant but it instantly declined from 0.8 in 2019 to -6.3% in 2020 (marked by an arrow). The decline was due to the novel pandemic virus, COVID-19 as it has impacted the businesses, consumption and trading activities of the country.
Unemployment:
Fig 2: Australian Bureau of Statistics (2020b)
The unemployment rate in Australia has been decreasing throughout the years, the lowest was in the last quarter of 2018 that was below 5.0%. However, it increased gradually in the succeeding year; the constant decrease in the unemployment rate shows that the government has been implementing policies to increase employment in the country. However, since the spread of coronavirus in Australia has forced the government to apply strict lockdowns in the country pressurizing company owners to either fire most of the employees or order them to start working from home. The individuals who were dependent on daily wages have lost their jobs because the virous is contagious so can spread easily. Its been a few months since the country is in lockdown, its not good for the country to be shut for this long because the unemployment rate has been increased and is now more than 7.4% which is a lot.
Inflation:
Fig 3: OECD (2020)
Inflation rate of a country shows the rise in prices of a good and services in a specific amount of period. In the graph above, the black line denotes the inflation rate of all 37 OECD countries whereas the red line denotes the inflation rate of Australia. The rate of inflation in the past years have been fluctuating but it is the first time in the history of the country that the inflation rate in a single year has been the highest and the lowest. This is remarkable as to how the fluctuations in the inflation rate can impact the overall economic situation of the country.
Current Account:
Fig 4: Australian Bureau of Statistics (2020c)
The current account balance indicates the value of imports and exports of goods and services, this term shows the trade sector of the country and is one of the main components of balance of payments. In case of Australia there has been a major rise in the current account balance is due to the increase in the surplus production of goods and services in the country. There was a drop in the imports and a rise in the exports so trade contributed about 1.0% to the growth in the June quarter (Australian Bureau of Statistics, 2020c). The current account deficit has transformed into a surplus during such conditions that the country wouldn’t have expected.
The Current Trends of Four Indicators:
Fig 5: Reserve Bank of Australia (2020a)
The current rate of unemployment rate shown in Figure 5 is about 7.5% which is unforgiving for a country like Australia because it would have devastating impacts in the coming years. To lower this percent of unemployment rate would be produce employment opportunities for the unemployed and how would it able to provide the opportunities if businesses or companies are not ready to invest in the country due to the negative value of the GDP growth rate which is shown in Figure 1 and 6.
There has been ups and down in the inflation rate of the country but it was highest in the beginning of the year 2020. However, during the current month that is September, the inflation rate has declined to -0.3%. The reason for this rapid reduction is due to the decrease in consumer prices by 1.9% along with other prices like transport (2.2%), education (2.7%) and housing (0.6%) (Trading Economic, 2020).
Fig 6: Australian Bureau of Statistics (2020a)
The Australian economy in the current year has seen a major economic outbreak due to the pandemic that has spread throughout the world. Many of the developed countries have been impacted by the virus including the Australian economy. There has been a significant decrease in consumption by households, private capital formation, exports and the biggest decline is shown in the values of GDP that is almost -7.0% which is the lowest in decades. The growth rate in 2015 (Figure 1) was much higher that was between 0 to 2% which indicates the GDP growth rate was in positive values.
Fig 7: Moody’s Analytics (2020)
The current account has been the highest among all the years, astonishingly there is a current balance surplus since 1975 where the current balance was in deficit. The year 2020 had a current account balance of about 17.7 billion dollars in the June quarter that was mainly because of a surplus in goods and services in the country (Australian Bureau of Statistics, 2020c). The increase in shown as a 29% change (Fig 7).
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Three Major Issues the Australian Economy would face in the future:
Lower Global Output:
After this year, there would be a decline in the global output in comparison to the previous years. The economic contraction of the country would be lower as compared to the giants like United Kingdom and Canada. The reason for a lower international demand is that majority of the exports are traded with the East Asian countries, among these countries China was among the major importers of Australian products. However, the host of the virus was China and the spread of the virus was from the Chinese tourists and people who travelled to the country for Chinese New Year. When comparing Australia with Japan and Korea, its contraction in output would be less than Japan and more than Korea Edwards, 2020). This would impact the surplus of the country as there would be less demand of the Australian products from the potential importers like the East Asian countries. The surplus would decrease in the succeeding year as compared to the current year. Not only this the unemployment rate would increase as the factories won’t operate due to the easy spread of virus among the workers of the industry.
Consumer Spending:
The pandemic has impacted the unemployment rate of Australia badly, the discussion above signifies that the rate is 7.5 percent till second quarter and is expected to rise in the year 2021. As many people are unemployed so they aren’t getting the desired income or not income at all due to which the spending of the products and services have been declined (Martin, 2020). This will impact the GDP growth rate of the country as the growth rate includes the consumer spending in an annual year. Not only the GDP growth rate would be impacted but the inflation rate would also be affected. The reason for the lower inflation rate is the decrease in consumer prices as people are unemployed and could not spend a good amount of money on the consumer goods and services.
External Sector:
The pandemic has forced the countries around the world to shut down its airport to avoid tourism and trade. The country either export goods through air or water transportation, both of these are closed as countries are scared of the increase in cases in their own country. The decrease in tourism would impact the GDP of the country as a chunk is earned through the tourism sector (Reserve Bank of Australia, 2020b). The trade sector would impact the current account as there would a decrease in exports indicating a decrease in the surplus of the products in the country. Not only these two sectors would be impacted but also the education sector as majority of the international students are from East Asian countries. China being the host of the virus has been strictly restricted by the country to not send the Chinese students. The education sector also contributes to the GDP increasing the GDP growth rate annually. However, the succeeding year would also hinder the Chinese students to enter the country.
Conclusion:
To conclude, every trend was fluctuating before 2020 but in the current year it either increased instantly or decreased rapidly. The values were either extreme negative or extreme positive, they weren’t in between. The growth rate had its ups and downs since 2012 but had an acute decline 2020 whereas the unemployment rate was constantly decreasing since 2015 due to policies by the government but had a rapid increase in 2020 which is 7.5%. The inflation was also fluctuating until the year 2020 where it was in negative that is -0.3% and the current account balance was in deficit since 2015 but is in surplus in 2020. Moreover, the three major issues that the country will face is the lower international output as majority of the exports are to the East Asian counties. The second one is the decline in consumer spending due to rise in unemployment and the last one is external sector that includes the trade, tourism and education sectors. These sectors would have an impact on the current account balance and the GDP growth. Hence, these were the major issues that the Australian government should be aware of.
References:
Martin, P 2020, Economic survey for 2020-21 points to a weak recovery getting weaker, amid declining living standards, ABC News, viewed on 11 September 2020 < https://www.abc.net.au/news/2020-06-29/economic-survey-australia-weak-recovery-getting-weaker/12398728>
Moody’s Analytics, 2020, Australia – Current Account Balance, viewed on 11 September 2020 < https://www.economy.com/australia/current-account-balance>
