An Analysis Of Macroeconomic Factors On Australian Economy Essay

Question:

Describe about An Analysis of Macroeconomic Factors on Australian Economy.

Answer:

Introduction:

Macroeconomic analysis is important because with the help of this the state of a region, country or a single factor can be assessed. The macroeconomic factors such as GDP, inflation rate, unemployment etc. roughly address the financial state of a country (Australia Government, 2016).

The aim of this report is to identify the current state and of the Australian economy. In order to evaluate the current state and the support of the management, few macroeconomic factors are to be analysed. Mainly four factors such that GDP, unemployment, trade and inflation rates have to be evaluated here (Trading Economics, 2016). The trend of this economic factors for past 10 years will be observed and analysed in order to evaluate the present economic state of the country.

For the past few decades, Australian federal government and RBA have implemented few policies which may address the current situation of the economy. This report may help to assess and evaluate the current economic situation.

Economic Indicators and their trends:

Economic indicators are important and their trend supports to interpret a country’s economic state. The main four indicators such as economic growth or GDP, trade, inflation rate and unemployment are the most important to justify a nation’s economic state (Aust. Bureau of Statistics, 1954).

The government has targeted to achieve a huge economic growth during this span. The rules and measurements had been adjusted to achieve the expected outcome but however, due to some economic obstacles, the nation could not reach, though. However, the venture was not a whole flop but yes few areas could have been emphasized more.

Economic Growth or GDP:

GDP or Gross Domestic Product is the widest quantifiable measure by which a country’s total economic activity can be calculated. More precisely, GDP or the Gross Domestic Product signifies the economic value of all assets and services generated within a nation's geographic boundaries over a particular time period. A high amount of GDP reflects the growth of the country and the lower amount of GDP reflects a weak economic state (Hubbard & O'Brien, 2013).

Now in order to evaluate the economic state of Australia for present days, the GDP valuation for the past few years can be assessed. From the following graph, the GDP trend of Australia can be assessed. The graph says that the GDP growth of Australia has been fluctuating severely for past ten years. In the year 2005-2006 it was stable but suddenly in 2007 the GDP growth had increased hugely (Blagrove, et al., 2016). Again from the years 2008, the GDP growth of Australia can be seen declining. A major reason behind that is the great recession or global financial crisis which had initiated by the Lehman Brother’s breakdown in the UK. Nevertheless, the GDP growth has started recovering after 2011. The following scenario states that the present economic growth of the country is improving day by day and a significant economic development in future is identified (IMF, 2009).

Inflation Rate:

Inflation can be defined as the sustainable increase in the price level of the products and the services. It is calculated on a yearly basis or annual percentage basis. Inflation results in increasing the daily expenses of the people. Increasing rate of inflation is a significant drawback for an economy. A high rate of inflation may affect the GDP growth of a country. Global crisis or recession actually influence the inflation to increase. The following graph shows the inflationary state of the Australian Economy (Krugman & Wells, 2013).

It is clear from the scenario that the present inflation rate of Australia is low which indicates that the economic state of the country appreciable. During the great recession in 2014, the inflation rate was the highest. The graph states that during 2008-2012 the economic situation of the country had started falling but again it has recovered during 2014-2015. Considering the trend of the inflation rate from the following figure is considered to be stable or will be decreasing for the new two years (Trading Economics, 2016).

Unemployment Rate:

Unemployment is an obstacle for an economy. It makes an economy poorer, increases poverty and decreases the economic growth. As the time has passed, the Australia has been developing over the years. Theoretically speaking, the achievement of past five years is considerably high and one of the significant change is its decreasing rate of unemployment. Unemployment is a state when people who are without work desperately seek for paid work. However, the below graph is a bit contradictory with statement proposed (Austrade Government of Australia, 2015). Though the increasing rate of unemployment in Australia is not much higher but, the rate is slightly increasing. Cyclical unemployment is the most common according to the survey. However, it has been noticed that the unemployment definition in Australia much differs from other nations. From that point of view, the long-term unemployment in Australia has been decreasing over the years (Hubbard & O'Brien, 2013).

Trade:

In terms of the balance of trade, a huge trade deficit has been observed during this duration of past ten years. In 2016, it is estimated that the exports rose to 3% whereas the trade deficit has increased and fluctuated towards downturn randomly. Few foreign affairs have been considered to be responsible for this scenario (Jha, 2008). Besides, some recent economic changes are also considered to as important for this deficit. Survey claims that the insufficient funds are another reason behind this business gap. Recently, from 2014, the oil price has been declining hugely. Though, the Australia is not a major participant of oil business but oil price fluctuations affect severely in some business sector of the country (White, 2009).

This trade gap in the Australian economy is considered as the significant reason behind the fluctuation of all other economic deflators. A nation like Australia earns huge from the international trade and business. Due to this gap, the GDP of the economy has been affected and unemployment has risen. However, considering these changes in mind the government has to tighten some major macroeconomic policies in order to address these issues (Dwyer, et al., 1990).

Current Macroeconomics Policy and their effectiveness:

The government had decided to achieve higher economic growth, a stable balance of trade, unemployment problem to be decreased and inflation rate to be controlled. When the government became fails to achieve these expected goals then it has implemented few macroeconomic measurements (Blagrove, et al., 2016).

The RBA has used short-term interest rates as its operating instruments in order to implement monetary policy (White, 2009). The monetary policy is generally implemented in order to make a huge economic growth, stability in the balance of payment and to achieve the full employment level. However, from the above analysis, it is observed that neither of the ones has been achieved satisfactorily by the Australia after the policy implementation by the RBA. The economic growth has successfully reached very near to the expected outcome because it is seen in fig 1 that GDP growth of Australia has been increased over the years (IMF, 2009).

Simultaneously, the unemployment level has been increased whereas according to the policy the employment level should have increased. On the other hand, it is researched that though the trade gap was high but it has decreased very recently (Leijonhufvud, 2000).

Fiscal policy is effective in order to control inflation and the unemployment rate. The federal government has agreed that the 6.5% increase in the unemployment rate in Australia can be accepted. According to the RBA, the fiscal policies have been considered as failed instrument to control the economic doldrums in Australia (Terra, 2015). They have accepted that the fiscal policy might decrease the level of unemployment and can provide future long-term affluence if it would have been invested in human capital such that education, etc. and public infrastructure. Secondly, the lower level of fiscal deficits is consciously damaging the economic growth of the country (Maiden, 2016).

The fiscal policy was not at effective whereas the monetary policies had done a little of the expectation. The RBA has stated that these chaos has occurred because some wrong decisions were made from their end too and economic situations were there (The Economist, 2015).

Conclusion and Recommendations:

After this detailed research, few interpretations can be made. The Australian economic has faced its worst for the past few years but again it has picked its motion since 2015. The RBA has implemented few policies in order to improve the situation. A higher growth can be expected in next five years. The unemployment rate is expected to be decreased in this span too and the inflation rate will also be controlled. With the help of FDI, the Australia is expecting a grand comeback in the international market.

This achievement cannot be done until and unless the macroeconomic policies are implemented properly. The trade deficit should be controlled very tactfully and scope of employment should be increased. The RBA should monitor the economic scenario time to time and spot decisions should be taken for any measurements.

References:

Aust. Bureau of Statistics, 1954. Year Book Australia, 1990 No. 73. Australia: Aust. Bureau of Statistics.

Austrade Government of Australia, 2015. AUSTRALIAN AEROSPACE INDUSTRY CAPABILITY DIRECTORY. [Online]
Available at:
[Accessed 23 04 2016].

Australia Government, 2016. Fair Work Commission. [Online]
Available at:
[Accessed 19 07 2016].

Blagrove, S., Hundloe, T. & Ditton, H., 2016. Australia's Role in Feeding the World: The Future of Australian Agriculture. Australia: Csiro Publishing.

Dwyer, L., Forsyth, P. & Findlay, C., 1990. Japanese investment in the Australian tourism industry: a framework for assessing impacts. Sydney: University of Western.

Hubbard, R. & O'Brien, A., 2013. Macroeconomics. Boston: Pearson.. Boston: Pearson.

IMF, 2009. Macroeconomic Fundamentals, Price Discovery and Volatility Dynamics in Emerging Markets. US: International Monetary Fund.

Jha, R., 2008. Contemporary Macroeconomic Theory and Policy. Kolkata: New Age International.

Krugman, P. & Wells, R., 2013. Macroeconomics.. New York, NY: Worth Publishers.

Leijonhufvud, A., 2000. Macroeconomic Instability and Coordination: Selected Essays of Axel Leijonhufvud. Cheltenham: Edward Elgar Publishing.

Maiden, M., 2016. Australian growth. [Online]
Available at:
[Accessed 27 5 2016].

Terra, C., 2015. Principles of International Finance and Open Economy Macroeconomics: Theories, Applications, and Policies. Cambridge: Academic Press.

The Economist, 2015. The causes and consequences of China's market crash. [Online]
Available at:

Trading Economics, 2016. GDP Per Capita. [Online]
Available at:
[Accessed 21 04 2016].

Trading Economics, 2016. tradingeconomics. [Online]
Available at:
[Accessed 31 05 2016].

White, M., 2009. Australian Offshore Laws. Australia: Federation Press.

How to cite this essay: