Macroeconomic Performance Of Australia And New Zealand

Data Collection

The major goal of every country is to improve its economic performance and hence raise the standards of living of its citizens. Economic growth of a country is measured mainly by its macroeconomic indicators (Lovell, Pastor & Turner, 2015, p.507). Economic growth is the most crucial statistic in any country as it indicates a country’s economic activity and can be used in comparing a country’s economic performance internationally against other countries. A country’s macro-economy measures the extent to which a country complies with the set government economic goals, objectives and policies. Every country’s government sets economic goals, objectives and policies which govern the economic activities within the country with the aim of improving its economic performance. The macroeconomic performance of a country is measured by four major indicators which include the real gross domestic product, inflation rates, unemployment rates and the balance of payments account (Harris & Silverstone, 2011, p.11). The level of the prevailing interest rates in an economy may also be considered. Generally, a country with a positive economic growth has its real gross domestic product improving with time (mostly on annual basis), the inflation rates should be two percent or less, the level of unemployment should be as low as possible (the country should actually target an unemployment rate of zero percent) and the balance of payments should be favorable (a favorable balance of payments means that a country undertakes more export business than the imports).

Australia and New Zealand have been doing well in terms of economic performance and are even anticipated to do much better in future. Both the countries’ economies are comprised majorly of the service sector which accounts for more than 60 percent of both the countries real gross domestic product (Castles, 2012, p.88). Both the countries compete favorably worldwide considering their economic performance but Australia is more developed compared to New Zealand and is on top in the world economic performance countries ranking.

In evaluating the macroeconomic performance of Australia and New Zealand, the following data on the key macroeconomic factors which include the real gross domestic product, interest rates, unemployment rates and inflation rates has been obtained from the year 1995 to 2015 (Lee & Gan, 2014, p.4):

The real gross domestic product of a country refers to the gross domestic product which has been measured taking into consideration the prevailing inflation rates in a country. Inflation refers to a situation whereby the general price of goods and services in a given country tend to increase putting into consideration a specific period of time which most of the times is taken to be one year (Scharpf & Schmidt, 2010, p.176). Considering various economic factors in a given country, the real gross domestic product growth rates and inflation rates relationship can either be positive, negative or neutral.

Relation between both countries’ real GDP growth rates and Inflation Rates

Australia is among the richest nations in Asia Pacific region and also has a high economic freedom. It has enjoyed almost more than a decade of economic growth after the 2009 great recession (Shan, 2009, p.253). Due to its excellent economic performance, it has continued to attract investors. This has enabled it to improve and maintain its economic performance.

During most times, Australia has posted e negative relationship between the real gross domestic product growth rates and the inflation rates. The following is the summary statistics for the real gross domestic product and the inflation rates in Australia for the period 1995 to 2015:

When the real gross domestic product grows, it means the overall economic performance is good. This means that consumers spend more, general investment in the economy increases and production by the producers as well increases to cater for the increased demand in the economy. As production increases, it reaches a point where no more production can be done as all the production tools and available employees are all occupied. This means that demand continues to grow but goods are no longer produced to meet their increased demand. As a result, the prevailing market price increase leading to inflation (Sherwin, 2010, p.15). The reserve bank lending rates rise and hence loans are issued by banks at higher interest rates. The overall investment in the economy decreases as the investment capital is availed at higher cost. The decrease in the overall level of investment in the economy lowers the overall real gross domestic.

When the real gross domestic product declines, the reserve bank lowers its lending rates. This means that investment capital is availed to investors at cheaper costs. More investors take advantage of the available cheap capital and invest massively in the economy. The massive investment in the economy increases the real gross domestic product. Hence, Australian relationship of the real gross domestic product growth rates and the inflations rates is inverse or negative as indicated in the graph below:

New Zealand has posted both a positive and inverse relation between the real gross domestic product growth rates and inflations rates depending on various macroeconomic factors. Years like 1995 posted a positive relationship between the country’ real gross domestic product growth rate and inflation rates while years like 2008 posted an inverse or rather negative relation between the real gross domestic product growth rate and inflation rates (Kenworthy, 2015, p.69). During the early years, the economy of New Zealand was undergoing rapid growth and was far from reaching its peak. A positive growth in the real gross domestic product occurred as the demand for goods and services rose in the overall economy, investment and overall production also increased. Prices of the overall commodities increased but did not lead to decline in the real gross domestic product as the economy was still growing at a fast pace. As the economy continued to grow, all the production tools in the production companies were occupied and no more goods could be produced. This means that the increased demand could not be met by the production companies and as a result inflation occurred (Woodford, 2010, p.239). The official cash rate of the economy bank was raised and hence investment decreased in the economy due to higher cost of the available capital for investment. As a result the overall real gross domestic product in the economy decreased hence showing an inverse relationship. The summary statistics and the graph are shown below:

Relation between real GDP growth rates and Inflation Rates in Australia

Unemployment refers to a situation whereby people who are qualified and willing to work are actively searching for jobs but they do not find them. As a result, they are left idol with most of them living a miserable life. An economically performing country has a lower level of unemployment. Every country tries as much as possible to eliminate unemployment among its citizens and hence improve its economic performance. As a result, the living standards of the employees in the country may end up being better.

Australia and New Zealand are both developed countries and have continued to keep their unemployment rates relatively low. Australia has a higher level of unemployment as compared to New Zealand but the deviation is not that much (Layard, Layard, Nickell & Jackman, 2015, p.140). During the early years, for example, from the year 1995 to around 2007, the unemployment rate in both countries has been relatively low. Between these years, 1995 to 2007, the unemployment rate in New Zealand increased at a higher rate compared to that of Australia. During the year 1997, Asia faced severe financial crisis and as a result the unemployment rate in both countries increased but the rate of increase was higher in New Zealand as compared to Australia bearing in mind that New Zealand was still lagging behind in terms of growth as compared to Australia which was undergoing economic growth at a fast pace during the early years (Murphy, 2011, p.335). After the great 2008 recession in Asia, Australia and New Zealand experienced a rise in the unemployment rates. The rate of unemployment during this period was higher in New Zealand than in Australia. New Zealand even posted a negative economic growth but Australia survived and despite the great recession, it still posted a positive economic growth but a low one. After the great recession, New Zealand and Australia unemployment rate increased with New Zealand leading up to the year 2012. From the year 2012, the unemployment rate in both countries has been decreasing due to better economic performance and is anticipated to be even much lower in future.

In a nutshell, Australia faces a higher unemployment rate than New Zealand. The unemployment rates in both countries are low averaging 6.1% and 5.5% respectively and this has made them to be ranked among the best performing countries not only in the Asia region but also worldwide. The unemployment rate in both countries has been decreasing for the past recent years and is expected to be even much lower in future. The summary statistics and the graphs for the two countries’ unemployment rate are shown below:

Relation between real GDP growth rates and Inflation Rates in New Zealand

Interest rate refers to the amount charged (which is actually the percentage of the principal amount) to the borrower by the lender for the use of the borrowed asset. It is the amount charged to the investors for the use of borrowed money from banks.  A higher interest rate discourages investment while on the other hand a lower interest rate encourages investment (Archer, Brookes & Reddell, 2009, p.51).

The following is the summary statistics for the interest rates (%) for Australia and New Zealand:

Generally, the interest rates for Australia and New Zealand have been high for the past years averaging at 5.06% and 5.68% respectively. New Zealand has been undergoing higher interest rates as compared to Australia. The interest rates have been decreasing over the period 1995 to 2015.

As the interest rates in Australia move, interest rates in New Zealand also move. For the past years as the interest rates of Australia decreased, the interest rates of New Zealand also decreased. This is due to the fact that every country tries its best to foster economic growth and any change in the other country’s interest rates may negatively affect its economic growth if not well adjusted.

For the past decade, the monetary policy has been tighter in Australia as compared to New Zealand (Ellis & Lewis, 2010, p.308). Australia’s interest rates have been kept lower than those of New Zealand and even today as the interest rates for Australia stand at 1.5%, those of New Zealand stand at 1.75% which is a bit higher. The graph for the relationship is shown below: 

Australia and New Zealand are not only among the best economically performing countries in Asia Pacific region but also in the whole world (Flanagan, 2009, p.1150). Based on the analysis, Australia and New Zealand are expected to maintain or even improve their excellent macroeconomic performance. The growth rates of the real gross domestic products for both countries have been increasing for the past years and hence a greater expectation for an improvement in macroeconomic performance. Both the inflation and unemployment rates for both countries have been decreasing for the past years. This also supports the prediction for a better future macroeconomic performance for both countries. The interest rates for both countries have also been decreasing for the past evidence meaning that the two countries are attracting more investments into their economies. This means that the two countries are likely to experience a better macroeconomic performance in future.

Relation between Unemployment Rates in Australia and New Zealand

In a nutshell, considering the analyzed macroeconomic indicators (the real GDP, the unemployment, inflation and interest rates), Australia and New Zealand are expected to have a better macroeconomic performance in future.

Conclusion

Australia and New Zealand are among the best economically performing countries in Asia Pacific region (Sieper & Wells, 2011, p.235). Australia has a better performing economy compared to New Zealand. A country’s rate of economic growth is measured by the macroeconomic indicators in the country which majorly include the real gross domestic product, the unemployment rates, the inflation and interest rates and the balance of payments. An economically stable country has relatively growing real gross domestic product, low level of unemployment, low inflation rate and low interest rates. Based on the analyzed macroeconomic indicators, Australia and New Zealand have been undergoing a better macroeconomic performance and they are anticipated to do much better in future. 

References 

Archer, D., Brookes, A. and Reddell, M., 2009. A cash rate system for implementing monetary policy. Reserve Bank of New Zealand Bulletin, 62(1), pp.51-61.

Castles, F.G., 2012. Needs-based strategies of social protection in Australia and New Zealand. Welfare states in transition: National adaptations in global economies, pp.88-115.

Ellis, L. and Lewis, E., 2010. The response of financial markets in Australia and New Zealand to news about the Asian crisis. International Financial Markets And The Implications For Monetary And Financial Stability, p.308.

Flanagan, R.J., 2009. Macroeconomic performance and collective bargaining: an international perspective. Journal of Economic Literature, 37(3), pp.1150-1175.

Halligan, J., 2013. New public sector models: Reform in Australia and New Zealand (pp. 17-46). Europäisches Zentrum für Staatswissenschaften und Staatspraxis.

Harris, R. and Silverstone, B., 2011. Testing for asymmetry in Okun’s law: A cross-country comparison. Economics Bulletin, 5(2), pp.11-13.

Kenworthy, L., 2015. Institutional coherence and macroeconomic performance. Socio-Economic Review, 4(1), pp.69-91.

Layard, P.R.G., Layard, R., Nickell, S.J. and Jackman, R., 2015. Unemployment: macroeconomic performance and the labour market. Oxford University Press on Demand, pp.140.

Lee, M. and Gan, C., 2014. Macroeconomic variables and stock market interactions: New Zealand evidence. Investment Management and Financial Innovations, 3, p.4.

Lovell, C.K., Pastor, J.T. and Turner, J.A., 2015. Measuring macroeconomic performance in the OECD: A comparison of European and non-European countries. European journal of operational research, 87(3), pp.507-518.

Murphy, L., 2011. The global financial crisis and the Australian and New Zealand housing markets. Journal of Housing and the Built Environment, 26(3), p.335.

Scharpf, F.W. and Schmidt, V.A. eds., 2010. Welfare and work in the open economy: volume II: diverse responses to common challenges in twelve countries. OUP Oxford, pp.176.

Shan, J., 2009. Immigration and Unemployment: new evidence from Australia and New Zealand. International Review of Applied Economics, 13(2), pp.253-260.

Sherwin, M., 2010. Strategic choices in inflation targeting: the New Zealand experience. Inflation Targeting in Practice: Strategic and Operational Issues and Application to Emerging Market Economies, p.15.

Sieper, E. and Wells, G.M., 2011. Macroeconomics on the left: Australia and New Zealand in the eighties. Australian Economic Policy, Centre for Economic Policy Research, Australian National University, Canberra, pp.235-280.

Woodford, M., 2010. Monetary policy in a world without money. International Finance, 3(2), pp.229-260.

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