Macroeconomic Data Evaluation For Australia: 2000-2019

Understanding the influence of business cycle on various economic factors

The GDP growth in Australia is measured as per the trends of the participation, productivity and population. The projections for real GDP growth were seen to be revised down from 2.25% to -0.2% in the first quarter of 2019 along with the reduction of 2.45% in the third quarter. The inflation rate was also seen to be revised from 2.5% to -0.3% (Ihsmarkit.com 2021). The purpose of this report is to evaluate the different types of macroeconomic data for Australia from 2000-2019. The main evaluation comprises of understanding the influence of business cycle on the factors such as fixed investments, interest rates, inflation rates, unemployment rate and real GDP. The study has used graphs and statistical summaries for identification of business cycles in Australia, discussed the impact of the business cycle on the variables such as Interest Rate, Investment Growth rate and interest rate. In addition to this, some of the other excerpts of the report has also eliminated the unemployment rate and inflation rate and whether or not there exists the Phillips curve in Australia. The discourse of the study has further performed a simple regression analysis for investigating the factors which influence the inflation rate in Australia, thereby estimating its effects as well. Lastly, an implication of the results has been also explained.

Identification of Business Cycles in Australia

The main determinant of the business cycle of Australia, takes into account factors such as Real GDP Growth Rate, Inflation, consumer prices, Unemployment, Interest Rate and Foreign direct investment, net inflows. Based on the depiction of the statistical summary, we are able to understand how the average real GDP growth rate from 2000-2019 was 2.91%. Along with this, the average inflation rate was 2.64%, unemployment rate was 5.48%, interest rate was 3.68% and FDI was 3.45%. The reliability of the sample can be further ensured with the skewness of close to zero for variables such as real GDP, inflation, unemployment and interest rate. On the other hand, the skewness of FDI is slightly inclined more to the right of the bell curve of normal distribution, thereby questioning the reliability only for this variable.

Table 1: Statistical Summaries

(Source: Data.worldbank.org. 2022a; Data.worldbank.org. 2022b; Data.worldbank.org. 2022c; Data.worldbank.org. 2022d)

Discussing the impact of business cycle on inflation rate, unemployment rate, interest rate and investment growth rate

Inflation Rate

Based on the impact of business cycle on inflation rate, we are able to identify how the inflation has followed an inverse relationship with real GDP during 2002-2006. However, since 2013 onwards the inflation rate has followed a similar trend like the real GDP.

Table 2: Impact of Business cycle on inflation rate (2000-2019)

(Source: Data.worldbank.org. 2022a; Data.worldbank.org. 2022b)

Figure 1: Impact of Business cycle on inflation rate (2000-2019)

(Source: Data.worldbank.org. 2022a; Data.worldbank.org. 2022b)

Unemployment Rate

As per the impact of business cycle on unemployment rate, we clearly able to observe how the unemployment rate measured at percentage of total labour follows an inverse relationship with the Real GDP. In this manner, throughout the year, during most of the times, whenever the unemployment rate has also declined with the real GDP growth rate has increased.

Statistical summaries of macroeconomic data

Table 3: Impact of Business cycle on Unemployment rate (2000-2019)

(Source: Data.worldbank.org. 2022a; Data.worldbank.org. 2022d)

Figure 2: Impact of Business cycle on Unemployment rate (2000-2019)

(Source: Data.worldbank.org. 2022a; Data.worldbank.org. 2022d)

Based on the investment growth rate computed using the foreign direct investment, which is the net flows of percentage of the GDP from 2000-2019, we are able to identify how it has followed a similar trend with the real GDP growth rate. However, the only exception can be seen during 2005-2006, when there was a sudden decrease in the trend of foreign direct investment.

Table 4: Foreign direct investment, net inflows (% of GDP) (2000-2019)

(Source: Data.worldbank.org. 2022a; Data.worldbank.org. 2022c) 

Figure 3: Foreign direct investment, net inflows (% of GDP) (2000-2019)

(Source: Data.worldbank.org. 2022a; Data.worldbank.org. 2022c)

As per the depiction of rate of inflation, we are able to recognise how both rate of inflation and real GDP growth rate followed a similar trend from 2000 to 2008. Due to the global financial crisis, we can clearly observe the increase in the interest rate despite of decreasing real GDP growth rate. Similarly, there has been some inconsistent patterns observed from 2012 to 2017, where we cannot infer a direct relationship between the two variables based on the analysis of business cycles. On a similar note, from 2018 onwards, both real GDP growth rate and interest rate has followed the exact same pattern.

Table 5: Impact of Business cycle on inflation rate (2000-2019)

(Source: Data.worldbank.org. 2022a; Data.worldbank.org. 2022b)

Figure 4: Impact of Business cycle on inflation rate (2000-2019)

(Source: Data.worldbank.org. 2022a; Data.worldbank.org. 2022b)

Discussing the relationship between inflation rate and unemployment rate and commenting whether there exists a Phillips curve in Australia

Based on the interpretation of the relationship between inflation rate and unemployment rate, it can be identified how there exists an inverse relationship between the aforementioned variables. In this context, whenever there is an increase in the unemployment rate, the inflation rate has decreased and vice versa. On a similar note, the Phillips curve in economics also refers to an inverse relationship that exists between unemployment rate and inflation. Therefore, we can arrive at a conclusion that there exists a Phillips curve in Australia.

Table 6: Relationship Between Inflation Rate and Unemployment Rate (2000-2019)

(Source: Data.worldbank.org. 2022b; Data.worldbank.org. 2022d)

Figure 5: Relationship Between Inflation Rate and Unemployment Rate

(Source: Data.worldbank.org. 2022a; Data.worldbank.org. 2022b) 

Conducting linear regression for investigating the factors influencing inflation rate in Australia and estimating the effects of the same

In general, the factors affecting the inflation rate in Australia is identified with increasing incidence of supply of money, consumer spending, disposable income, public expenditure, monetary policy, deficit financing, repayment of public debt, expansion of private sector and increase in exports. However, for simplicity the linear regression has considered the two independent variables as public expenditure and increase in exports.

Table 7: Factors impacting the inflation rate in Australia

(Source: Data.worldbank.org. 2022b; Data.worldbank.org. 2022e; Data.worldbank.org 2022f)

Impact of business cycles on inflation, unemployment, interest and investment growth rates

The summary output enumerates how the independent variables such as government expenditure and export of goods and services influence the dependent variable inflation rate by up to 34.6%.

Table 8: Regression Summary output

(Source: As created by the author)

The ANOVA summary shows how independent variables namely government expenditure and export of goods and services directly impacts inflation rate and holds a statistically significant relationship with a p value of 0.027, which is lesser than 0.05.

Table 9: ANOVA Summary

(Source: As created by the author)

As per the depictions of the coefficient summary as well we can observe how both the independent variables are statistically significant as the P value of X Variable 1 i.e., General government final consumption expenditure is 0.003 and X Variable 2 i.e.; Exports of goods and services is 0.01, which are both lesser than 0.05.

Table 10: Coefficients Summary

(Source: As created by the author)

As per the scatter diagram as well we can clearly depict the inverse relationship that exists between inflation and converse expenditure. 

Figure 6: Impact of Consumption Expenditure on Inflation

(Source: As created by the author)

The scatter diagram in figure 7 as well indicates the inverse relationship that exists between inflation and export of goods and services.  

Figure 7: Impact of Exports of goods and services on Inflation

(Source: As created by the author)  

Based on the results obtained above the policy implication shows that from 2019-2020, the government should emphasise on increasing the disposable income growth for household. In addition to this, public demand and business investments should support the growth forecast in the future as well. As the consumption was weak the during the second half of 2018, the future policy needs to emphasise on stabilisation of growth in activity and increasing the intercity migration pertaining to the rural-urban development. The emerging policies should also take into account investment in property market in China and infrastructure spending for ensuring a stable growth trajectory pertaining to the high ongoing demand of steel in China.

Conclusion

As per the depictions of the business cycle, we can observe how the inflation has followed an inverse relationship with real GDP during 2002-2006. However, since 2013 onwards the inflation rate has followed a similar trend like the real GDP. The FDI has also followed a similar trend with the real GDP growth rate. The findings in the second section of the study elaborates how there exists Phillips Curve in Australia. On a concluding note, we are able to understand how there exists a direct impact of expenditure and export of goods and services on the inflation rate. Furthermore, the Australian government should emphasise on increasing the disposable income growth for household as per the observed statistical implications. 

References

Data.worldbank.org. 2022a. GDP growth (annual %) – Australia | Data. Available at: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=AU (Accessed: 9 January 2022).

Data.worldbank.org. 2022b. Inflation, consumer prices (annual %) – Australia | Data (2022). Available at: https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?locations=AU (Accessed: 9 January 2022).

Data.worldbank.org. 2022c. Foreign direct investment, net inflows (% of GDP) – Australia | Data (2022). Available at: https://data.worldbank.org/indicator/BX.KLT.DINV.WD.GD.ZS?locations=AU (Accessed: 9 January 2022).

Data.worldbank.org. 2022d. Unemployment, total (% of total labor force) (modeled ILO estimate) – Australia | Data (2022). Available at: https://data.worldbank.org/indicator/SL.UEM.TOTL.ZS?locations=AU (Accessed: 9 January 2022).

Data.worldbank.org. 2022e. General government final consumption expenditure (% of GDP) – Australia | Data (2022). Available at: https://data.worldbank.org/indicator/NE.CON.GOVT.ZS?locations=AU (Accessed: 10 January 2022).

Data.worldbank.org. 2022e. Real interest rate (%) – Australia | Data (2022). Available at: https://data.worldbank.org/indicator/FR.INR.RINR?locations=AU (Accessed: 9 January 2022).

Data.worldbank.org. 2022f. Exports of goods and services (% of GDP) – Australia | Data (2022). Available at: https://data.worldbank.org/indicator/NE.EXP.GNFS.ZS?locations=AU (Accessed: 10 January 2022).

Ihsmarkit.com. 2021. Australian economy rebounds in early 2021 (2021). Available at: https://ihsmarkit.com/research-analysis/australian-economy-rebounds-in-early-2021-apr21.html (Accessed: 10 January 2022).

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