Description of the four economic indicators

Discuss about the Role and Consequences of Investment.

The reported paper reviews the existing economic structure of the Australian economy and the function of the Federal government to manage the proceedings. Through the identification of four specific economic indicators such as economic growth (GDP), the rate of unemployment, inflation and trade, an outline of the target values determined by the Federal government and the Reserve Bank of Australia (RBA) has been presented following the trends in the previous decade or so (Freebairn, 2007). By considering the targets values of the identified economic indicators, the existing macroeconomic policies of the RBA and Federal Government of Australia such as fiscal policy and monetary policy have been described in the limelight of economic environment (Capie, 2015). Moreover, the efficacy and suitability of the identified macroeconomic policies have been analysed in context to achieve the targets of the four identified economic indicators (Kuo, Lee and Fang, 2014). Apparently, at the end of the discussion specific conclusion and recommendation have been drawn to achieve target values for the four identified economic indicators.

The current economic structure of Australia can be identified through the four crucial economic indicators and their performance over the past ten years (Foster, 2015). Under the existing scenario, the RBA and Federal Government of Australia have an economic growth target of 3.3 percent to be precise. Also, the target for the rate of unemployment is below 5.7 percent. Furthermore, the rate of inflation has been targeted around 1 percent. Invariably, the targeted current account deficit consensus is AU$19750 million (Abs.gov.au, 2016).

Figure: Australian the Gross Domestic Product (GDP) (2006-2016)

Source: (Abs.gov.au, 2016)

According to data released by the Australian Bureau of Statistics (ABS), in 2015 the Gross Domestic Product (GDP) of Australia was registered worth US$1339.54 billion which is 2.16 percent of the global GDP. As shown in the above graph, since 2009, the GDP of Australia has been increasing in a staggered pattern posting the highest in 2013 (Abs.gov.au, 2016).

Figure: Australian GDP Growth Rate

Source: (Abs.gov.au, 2016)

Also, as far as the GDP growth rate is concerned, the Australian economy is convincingly bouncing back. In the past four years, the revised GDP growth has shown improvement in the first quarter in 2016. The growth rate has been registered to be 1.1 percent QoQ basis whereas the YoY growth rate speeds up to 3.1% (Abs.gov.au, 2016).

Figure: Australia Unemployment Rate

Source: (Abs.gov.au, 2016)

According to the target of the RBA and Australian government, the seasonally adjusted rate of unemployment has fallen to 5.7 percent as the revised data issued in July of 2016. In 2016, the Australian economy has added 26200 jobs (Abs.gov.au, 2016). Clearly, after 2008, the job market of Australia has seemed to pick up the pace creating more employments.

Figure: Australia Inflation Rate

Source: (Abs.gov.au, 2016)

Under the current scenario, the inflation rate of 1 percent registered in June of 2016 is comprehensively the lowest since 1999 (Abs.gov.au, 2016). Unexpectedly, the CPI rose to a considerable margin in the last quarter of 2015 to 1.7 percent. Meanwhile, the current rate of inflation is in line with the RBA targets.

Current macroeconomic policy in Australia and its effectiveness

Figure: Australia Trade Balance

Source: (Abs.gov.au, 2016)

Considering the Australian trade data, the trade gap has been registered as AU$2.41 billion in 2016. The trade gap has reduced due to rise in export by 3 percent to AU$26.42 billion in compared to import of AU$28.84 billion (Reserve Bank of Australia, 2016).

Figure: Australia Total Gross External Debt

Source: (Abs.gov.au, 2016)

As shown in the graph figure, the total Gross External Debt in Australia has surged to AU$1941405 million in 2016 reaching all time high. Moreover, the data released by ABS has confirmed that the current account deficit is AU$15535 million in compared to the revised data of AU$14899 million in 2015 (Reserve Bank of Australia, 2016). Invariably, the consensus was AU$19750 million. Meanwhile, the trade data determines the value of Australian dollar which is equal to US$0.7678 each.

The government of Australia has focused on three primary economic objectives after the global financial crisis in the year 2008. The three primary economic objectives are to maintain domestic balance, external balance and financial growth in a single economic framework (Jonson, 2015). The macroeconomic policy of the government is used to minimise the influence of international trade downturn by controlling the demand and supply in the nation for a sustainable growth of the country (Treasury.gov.au, 2016). The macroeconomic goals of the Australian government are to seek high and balanced economic growth rates, lower inflation rate, lower unemployment, and maintain a stable and manageable Balance of Payments.

Furthermore, the Australian Government aims to minimise recession in the regional market by controlling the demand and supply of commodities in various industries of the country. In order to achieve its macroeconomic goals, the authorised heads use two different macroeconomic tools known as monetary policy and fiscal policy. The monetary policy is used to control the supply of money in the Australian market. The Reserve Bank of Australia is responsible to maintain the monetary policy in the country. It mainly involves the setting of interest rates of loans in the money market. It helps to control the supply of money in the market and control investment on new projects (Connolly and Gustafsson, 2013). On the other hand, Fiscal Policy presents the government spending that are used to control inflation and unemployment rate in the nation. Along with that, the fiscal policy is also used to control the demand and supply of a commodity in the market that helps to control the price fluctuations (Smales, 2015). The decision of the fiscal policy is made by the Commonwealth Government after passing Bills. Furthermore, the Fiscal Policy is mainly used to stabilise the business cycle and control the economic balance. Hence, it can be seen that both of these macroeconomic policies work together to meet the challenges of economic development.

It can be seen that the major issues for the Australian government is the growing population. It has been estimated that the population will increase by 15 million by the end of 2030. Hence, the population of the country is getting aged due to increase in the mortality rate in the nation. Hence, the Australian Government has made necessary changes in the taxation policy to support the changing needs of the aged population and seek a sustainable tax system (Donnelley, 2010). Furthermore, we can see a rise in the tax rate for younger population in the recent years that increases the government’s earning, but reduces the investment opportunities of the people. Along with that, the Australian government has introduced subsidies and tax relief for the entrepreneurs investing in technological development (Pervaiz and Chaudhary, 2015). The fiscal policy for the new entrepreneurs has been introduced to enhance development and promote business opportunities in the country. Now, considering the monetary policy of the Australian Government, it can be seen that the Reserve Bank of Australia has reduced the interest rates from around 5 percent in the year 2010-11 to around 1.5 percent in the year 2015-16 (Reserve Bank of Australia, 2016). A diagram has been presented below for better understanding.

Figure: RBA Interest Rate

Source: (Global-rates.com, 2016)

Hence, it can be seen from the above analysis that the Australian Government has made necessary macroeconomic reforms to improve the economic balance in the nation (Carmichael and Dews, 2007). Currently, a better economic growth can be evident in the country. Along with that, the unemployment rate has also decreased in the recent years as compared to the rates during the global financial crisis (Scutt, 2016). Furthermore, the country has been able to control the inflation rate after the global financial distress. Hence, it can be seen that the macroeconomic policy of the government of Australia was effective in achieving the economic goals of the country.

Conclusion

In the underlying section some of the crucial recommendations have been made to achieve the targets of GDP growth, unemployment, inflation and trade outcomes of the Australian economy.

• Cutting rate of interest under the Monetary Policy: Under the Monetary Policy of the Reserve Bank of Australia, interest rate cut can be an instrumental option to boost the Australian dollar. In this way, the government can support the employment, growth structure and trade outcomes in a successful way.
• Cutting tax rates under the Fiscal Policy: Similarly, tax rate cuts under the Fiscal policy measures can boost the Australian currency to reduce unemployment, rate of inflation and trade deficits in a considerable way.
• Improve Demand and supply side policies in Labour Market: Apparently, advanced demand and supply side policies must be enforced in the labour market so that structural unemployment can be reduced significantly controlling the rate of unemployment.
• Promote Government Subsidies: Last but not the least; by offering government subsidies, the domestic industries can contribute towards GDP growth in a substantial margin

The above discussion can clarify the fundamental economic strength of Australian economy as the data evidence is quite magnificent for further growth perspective. Meanwhile, the global uncertainties and lack of industrial output have forced Australian economy towards financial threats. Understandably, the RBA and Federal government must identify the effects of global uncertainties on the GDP growth rate, unemployment structure, rate of inflation and trade outcomes. Also, the role of Australian dollar will be evident in this situation.  Clearly, more strategic provisions and policy measures must be identified to achieve the targets related to the four recognised economic indicators.

References

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Capie, F. (2015). Trust, Financial Regulation, and Growth. Australian Economic History Review, 56(1), pp.100-112.

Carmichael, J. and Dews, N. (2007). The role and consequences of investment in recent Australian economic growth. Canberra: Australian National University. Centre for Economic Policy Research.

Connolly, E. and Gustafsson, L. (2013). Australian Productivity Growth: Trends and Determinants.Australian Economic Review, 46(4), pp.473-482.

Donnelley, L. (2010). International capital movements. Providence.

Foster, J. (2015). The Australian Multi-Factor Productivity Growth Illusion. Australian Economic Review, 48(1), pp.33-42.

Freebairn, J. (2007). Recent Australian economic growth. Canberra: Australian National University, Centre for Economic Policy Research.

Jonson, P. (2015). Monetary Policy and Macroprudential Policies. Australian Economic Review, 48(2), pp.190-191.

Kuo, K., Lee, C. and Fang, C. (2014). Free Trade and Economic Growth. Australian Economic Papers, 53(1-2), pp.69-76.

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Reserve Bank of Australia. (2016). Monetary Policy. [online] Available at: https://www.rba.gov.au/ [Accessed Sep. 2016].

Scutt, D. (2016). Australian economic growth is roaring. [online] Businessinsider.com.au. Available at: https://www.businessinsider.com.au/australia-q1-gdp-report-2016-6 [Accessed Sep. 2016].

Smales, L. (2015). RBA Monetary Policy Communication: The Response of Australian Interest Rate Futures to Changes in RBA Monetary Policy. SSRN Electronic Journal.

Treasury.gov.au. (2016). Treasury Home Page | The Treasury. [online] Available at: https://www.treasury.gov.au/ [Accessed Sep. 2016].