Summary Statistics of Key Macroeconomic Indicators
The paper evaluates the macroeconomic performance of Australia for over 26 years from 1990 to 2015. The key macroeconomic variables are real GDP, inflation rates based on Consumer Price Index (CPI), rate of exchange, exports and imports, that have been used in evaluating the economic performance. The real GDP growth rate is the variable in real terms, while other variables are nominal. The real variable is adjusted for inflation by using deflator to get a better comparison (Potrafke 2012). The future outlook of the economy is analyzed and discussed depending on historical data.
Real GDP is evaluated by dividing the nominal GDP by GDP deflator. Mean denotes the average of the growth rate of real GDP. It shows the average rate of growth of the economy, which is -13%. It represents a negative growth of the economy, which is contraction in earnings. The nominal GDP has a positive trend, while average rate of growth is negative (Sumner 2012). Mean value and median value are different, indicating asymmetry in the data. Standard deviation measures the volatility of the real GDP growth rate and standard error is square root value of standard deviation. It measures how far the growth of the economy is lying from the expected growth. The value is quite high. The skewness of the data is negative, and skewed to the left because average value is lower than median (Ianchovichina 2012). Kurtosis value is more than 3, indicating the dataset has a weightier tail than in normal distribution. It was maximum in 2010 and minimum in the year 2013.
The average real rate of interest of Australia from 1990-2015 was 5.33%. It was maximum in the year 1991 at 10.06% and lowest in 2009 at 1% (World Bank 2017). Mean value is greater than the median and close to each other. There is not much asymmetry in distribution and skewness is low. The fluctuation in the data is also low.
The average unemployment rate of Australia stood at 6.75% in the range of 25 years. The rate reached its peak at 10.87% in the year 1993, while it had a downfall in the successive years and reached its lowest at 4.23% in the year 2008. The rate of unemployment is quite higher in Australia because of some monetary policy of RBA. Mean value is higher than the median value; hence, there is asymmetry in the data. Low standard error indicates less fluctuation. Negative kurtosis value indicates flatter distribution, i.e. values are similar over the years and close to the average value.
Pair-wise Graphs of Key Macroeconomic Indicators
Australia’s average rate of inflation, based on Consumer Price Index (CPI) is 2.73% between 1990 and 2015. The rate was highest at 7.27% in 1990 and lowest at 0.25% in 1997. The data shows that the average inflation rate is quite low. The standard deviation and standard error are very low, hence, there is not much fluctuation in the data. The mean and median values are very close. Skewness and kurtosis both are positive.
Exchange rate denotes the value of currency of a country in terms of other currency. The above data is shows the value of AUD in terms of USD (Boons et al. 2013). The average exchange rate over the 26 years was 1.34, which is stable. The mean and median values are very close. Standard error is very low, indicating very less fluctuation in the data. Skewness and kurtosis both are positive.
The average net export growth of the Australian economy is negative. This indicates negative growth in exports. This related with real GDP growth rate. The summary statistics have shown that the real GDP growth rate of Australia in these 26 years is negative. Hence, average growth of net exports is also negative. There is high difference in mean and median value, median being greater than mean. It shows that there is asymmetry in the data. The standard deviation is very high; indicating the actual value of net exports is quite far from the expected value. The standard error is also high. High value of kurtosis shows that the distribution has heavy tail towards the higher value. Skewness is negative. The data indicates that over the 26 years, net exports are very high in some years, and very low in some others. Hence, the fluctuation is very high. The range also proves a very high difference between the highest and lowest value of net exports.
Correlation represents the relation between independent and dependent variables. When the Real GDP growth rate is the dependent variable and others are independent, then real GDP growth rate is positively related with real rate of interest, unemployment rate, exchange rate and growth of net exports, but it is negatively related with inflation rate. This indicates that when the inflation rate is higher in the country, the real GDP growth rate goes down (Cecchetti and Kharroubi 2013). Unemployment rate is negatively related with inflation rate. Again, net exports growth has a negative relationship with inflation rate, while has positive relationships with the other variables. Exchange rate has a negative relationship with real rate of interest, as when the real rate of interest rises, exchange rate of a country falls. Exchange rate has a positive relationship with the other variables (Herndon, Ash and Pollin 2014).
Correlation among the Variables
From the findings above, it is seen that the growth rate of real GDP of the Australian economy is not steady and there are fluctuations in the growth rate over this 26 years. However, there is a rise in the nominal GDP. Real GDP has not increased much. The rate of growth of real GDP is negatively correlated with rate of inflation. The rising inflation has reduced the worth of real GDP. Hence, higher inflation does not have a positive effect on the Australian economy (Bodie 2013). Thus, the primary objective of Reserve Bank of Australia is to keep the level of inflation low. RBA has set the target inflation rate at 2% (rba.gov.au 2017). To keep the rate of inflation at a lower level, RBA has set monetary policies to compromise with the employment level. Therefore, rate of unemployment is quite high in Australia, with an average of 6.75% in these 26 years. The service sector has demonstrated dramatically high growth compared to the agriculture and manufacturing sectors. Thus, the scope of employment was reduced in those two sectors (Anzuini, Lombardi and Pagano 2012). One of the significant sectors of Australian economy is the mining sector, which is also going through a slowdown in the recent years. The growth in the net exports had reduced drastically during the global financial crisis around 2008-2009, however, it recovered swiftly after 2010.
RBA has cut the real interest rate over the years to boost up the Australian economy. A decline in the real rate of interest makes the investment and borrowing less costly. A rise in the investment helps to increase the GDP and get out of the deflationary pressure. The increase in the business investment led to an enhancement of productivity in the economy, along with higher wage and employment in the long run. Lower rate of interest encourages the investors to invest more into the economy (Barro 2013). The rate of exchange is also stable in the economy over the years. Figure 6 depicts that real interest rates have experienced more fluctuations than the official exchange rate of the economy. RBA has established a strong monetary policy to face any crisis. The only area of worry for the economy is lower rate of growth of real GDP and higher rate of unemployment (Willard 2012).
From the above analysis, it is found that the overall macroeconomic performance of Australia is moderate. The factors of real rate of interest and inflation are prospective for the economy, while real GDP growth rate, growth of net export and fall in the unemployment are not satisfactory. The real GDP growth rate has been very much fluctuating and nominal and real GDP are showing a downward trend since 2014. Falling growth rate represents that if Australia cannot recover from the current situation, there will be recession in the near future. At present, deflation has become another major concern for Australia. Low inflation rate (CPI) means lower demand for goods and services in the economy (Rey 2015).
For improving the condition, RBA must implement tight fiscal policy. The macroeconomic outlook for the country requires high investment, lower unemployment, infrastructural development, and growth in exports. A stabilized exchange rate further favors the terms of trade in the global market (Elsby, Hobijn and ?ahin 2013).
Conclusion
The paper highlighted various macroeconomic variables in the Australian economy. There has been much progress in the economy since 1990s. The data shows that the global financial crisis did not affect the Australian economy much. Although the economic performance of the country is not much satisfactory since 2013, demonstrated by growth rate of real GDP and rising rate of real interest. The exchange rate and inflation rate remained quite stable compared to the other variables. As the negative growth cannot persist for long term, hence, the scope of recession is low. Australia has a rigid monetary policy and the government must put efforts on the creation of job opportunities and increase in the investments to push the economy further towards a positive growth.
References:
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rba.gov.au, 2017. Reserve Bank of Australia. [online] Reserve Bank of Australia. Available at: https://www.rba.gov.au/ [Accessed 27 May 2017].
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Sumner, S., 2012. The case for nominal GDP targeting. Mercatus Research.
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World Bank, 2017. Australia | Data. [online] Data.worldbank.org. Available at: https://data.worldbank.org/country/australia [Accessed 27 May 2017].
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