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Australia’s Economic Situation

To begin with, the world economy is often collapsed by crisis. It is known that many economists tend to increase the local economies then to provide a strict policy in supporting other countries. It concerns mainly well-developed countries with highly intensified economies. Australia is no exception in this case. Its economic structure with many faceted investments and powerful governmental support influences greatly on the flow of economic processes in nearby countries and in the world on the whole. It is affirmed, for example, by stability of its currency, which impacts on the Foreign Exchange Market. Nevertheless, there are some recent problems which cannot but terrify the economic branch of Australian society.

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The article by Chris Zappone printed in ‘The Age’ shows the unsettling statistics. He notes that Australia’s impact of consumer activity declined by the period of last 11 years. It regards the reading of inflation rate, job big cut and incomprehensible situation on the market of oil. The stable economy of Australia incurred substantial costs within the last few months: “The Westpac/Melbourne Institute index of economic activity, meanwhile, contracted by 2.2pc in November, the first negative readings since 2001 and were far below the long-run growth rate of 3.5pc” (The Age, 2009). This report is good considering the supposed drop of the fuel prices as crude oil fell in it since the last quarter of the year 2008.

Also it is a negative data for the joblessness rate is still growing. The data of economic development of Australia show the curve slowly going up. Last couple of years in spite of stable growth suffered from its lower levels in economic development. In recent years the stability of the country was relative. The fact that the several reforms in employment and product markets along with rational macroeconomic policy principles resulted in better development of the country’s well-being. As of the situation in the world and global decline in various branches of industries on the whole, Australia is intended to force upon the main constituent parts of its economic sphere, so that to blow over the hazards of crisis. It is important then to give consideration to the structure of the country ‘s economy. As Glenn Stevens illustrates (Stevens, 2) in the table of comparison within thirty years, data are constantly going down in Australia’s main industries:

Table 1: Structure of Australia’s Economy Share of GDP (per cent)
1977 2007
Manufacturing 16.4 10.1
Financial, property and business services 12.4 19.5
Wholesale and retail trade 11.1 10.3
Education, health and community services 9.2 10.0
Utilities and transport 6.6 6.8
Construction 6.3 6.8
Mining 5.9 6.8
Government administration and defence 4.9 3.9
Rural 3.7 2.1
Communication services 0.7 2.7
Other 22.9 21.2
Source: ABS

Leading experts in such macroeconomic issues suggest using the model of aggregate demand and supply. Such measures would help in analyzing the benefits and risks for the economy. Here monetary policy matters much. As we know, aggregate demand is derived with the ISLM model. In combination with aggregate supply data displayed with a curve tool these indicators help to make out price-inflation and produce movement. Today there is inflation targeting provided policy of RBA. This measure is aimed at a forced sobriety to the central bank in a medium-term perspective. The initiative, on the one hand, controls inflation gradually, but, on the other hand, it does not guarantee its regulation in the short-term perspective. In that case trends of economic activity also adjust employment, but the main aim is to prevent the currency price from falling over years. Stevens comments this approach as follows:

In the language of trade-offs, this system accepts there is a short-term growth/inflation trade-off, but also accepts there is no long-term one. Inflation targeting does not ignore financial quantities, but does not elevate them to the status of an intermediate target and does not see them as an instrument (Stevens, 9).

The policy of inflation targeting is not easy to comprehend for economists, as it is a difficult model to make decisions, though it is the best one for stimulating economic growth in order to preserve the Australian society from demand shock in its aggregate framework. Foreign competition now is agreeable for Australia as one of the leaders in the world arena. In the short run the equilibrium of price levels is forecast in the markets of the country. As the economy of Australia was shifted as a result of crisis effects, so adjusting the expectations of producers, entrepreneurs and employees in the long run it is hard yet to assume whether the prices will stay the same or they move up. Keeping in mind all information mentioned above, it is feasible to consider the ramifications of any change of aggregate demand in both long and short run.

Reference List

Bernanke, B & Olekalns, N Principles of Macroeconomics; Edition: 2, McGraw-Hill, 2008.

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Zappone, C ‘Biggest CPI fall in 11 years clears way for interest rate cut’; The Age, 2009.

Stevens, G ‘The Australian Economy then and now’; Reserve Bank of Australia: Web.

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