Performance Of The Australian Economy: Analysis Of Key Economic Indicators (1990-2015)

Real GDP Growth Rate

The performance of the Australian economy in terms of economic growth has been considerably good over the past few years. The GDP growth rate has recovered since after the global financial crisis and has been positive in the past few years. The inflation rate has been under control and the level of unemployment has been low. On the international trade frontier, the economy has been performing well. Thus, in terms of all the macroeconomic parameters, the performance of the Australian economy over the past few years has been considerably good. The data on real GDP, interest rates, unemployment rate, CPI and inflation rate, exchange rate, exports and imports for Australia over the period 1990 to 2015 have been collected.

The summary statistics for real GDP growth rates is given as follows:

 On an average, the real GDP has grown at a rate of 0.54% over the span of 1990 to 2015. The median value is 1.0002% which implies that over the period concerned, half of the time the real GDP growth rate was below 1.0002% and for the other half it was above 1.0002%. The variation as represented by the standard deviation for the real GDP growth rate is 2.28%. This implies that on an average, the real GDP has fluctuated by 2.28% from the mean value. From the measures of skewness and kurtosis, it is evident that the distribution of real GDP growth rate over the years is asymmetric. The minimum growth rate has been negative at -3.58% and the maximum is 4.65% over the given years. Hence the range is 8.24% which represents the difference in the economic performance of the economy over the 25 years considered. Thus over the period, the real GDP growth rate has been considerably low which represents a slow economic growth of Australia.

The summary statistics for inflation rates is given as follows:

 The average inflation rate in Australia over the given period is 2.73%. The median value is 2.55% which implies that over the period concerned, half of the time the inflation rate has been below 2.55% and for the other half it was above 2.55%. The variation as represented by the standard deviation for the inflation rate is 1.46% which is not very high. This indicates that there have been no major price fluctuations in the economy over the period 1990 to 2015. From the measures of skewness and kurtosis, it is evident that the distribution of inflation rate has been moderately symmetric over the years. The minimum inflation rate has been 0.25% and the maximum is 7.3% over the given years. Hence the range is 7.02% which represents the degree of fluctuation in the price level over the given period of time. Thus, in terms of price, the Australian economy has maintained stability over the given period. The general price level has not registered major fluctuations due to which the inflation rate has not varied much over the period.

Inflation Rate

 The summary statistics for unemployment rates is given as follows:

 On an average, the unemployment rate over the span of 1990 to 2015 has been 6.75%. The median value is 6.04% which implies that over the period concerned, half of the time the unemployment rate was below 6.04% and for the other half it was above 6.04%. The variation as represented by the standard deviation for the unemployment rate is 1.95%. This implies that on an average, the unemployment rate has fluctuated by 1.95% from the mean value. From the measures of skewness and kurtosis, it is evident that the distribution of unemployment rate over the years is asymmetric. The minimum unemployment rate has been 4.23% and the maximum is 10.87% over the given years. Hence the range is 6.64% which represents the difference in the labour performance of the economy over the period 1990 to 2015. Thus over the period, the unemployment rate has fluctuated considerably representing the disparity in the performance of the economy over the years (Blanchard and Johnson, 2012).

 The summary statistics for exchange rates is given as follows:

 The mean exchange rate over the given period of time has been 1.35. The median value is 1.33 which implies that over the period concerned, half of the time the exchange rate was below 1.33 and for the other half it was above 1.33. The variation as represented by the standard deviation for the exchange rate is 0.24. This implies that on an average, the exchange rate has fluctuated by only 0.24 from the mean value. From the measures of skewness and kurtosis, it is evident that the distribution of the exchange rate over the years is asymmetric. The minimum exchange rate has been 0.96 and the maximum is 1.93 over the given years. Hence the range is 0.96 which represents a very low fluctuation of the exchange rate of the economy over the 25 years considered. Thus in terms of the stability of the exchange rate, the performance of the Australian economy has been considerably good because the exchange rate has not fluctuated much. This stabilizes the international economic position of the country and ensures a stable economic performance.

 The summary statistics for real interest rates is given as follows:

 The mean real interest rate over the given period of time is 5.33%. The median value is 5.18% which implies that over the period concerned, half of the time the real interest rate was below 5.18% and for the other half it was above 5.18%. The variation as represented by the standard deviation for the real interest rate is 2.51%. This implies that on an average, the real interest rate has fluctuated by only 2.51% from the mean value. From the measures of skewness and kurtosis, it is evident that the distribution of the real interest rate over the years is asymmetric. The minimum real interest rate has been 1.04% and the maximum is 10.06% over the given years. Hence the range is 9.02% which represents a considerably fluctuation of the real interest rate of the economy over the 25 years considered.

Unemployment Rate

 The summary statistics for the rate of change of net exports is given as follows:

The average rate of change of net exports over the given period of time is -47.53%. Thus, on an average, the change in net exports has been negative, that is, over the given period, imports have been more than exports in the Australian economy. The median value is -4.32% which implies that over the period concerned, half of the time the exchange rate was below -4.32% and for the other half it was above -4.32%. The variation as represented by the standard deviation for the rate of change in net exports is 247.36%. This implies that on an average, the rate of change of net exports has been extremely large. From the measures of skewness and kurtosis, it is evident that the distribution of the rate of change of net exports over the years is asymmetric. The minimum exchange rate has been -1203.92% and the maximum is 196.87% over the given years. Hence the range is 1400% which represents the level of disparity in the net export level of the country. The minimum level of the rate of change in net exports shows the level of fall in net exports from one year to another. Thus over this span of time, at some point, the net exports had fallen considerably. Thus, in general, the Australian economy imports from the international economy much more than it exports. Hence the net exports tend to be in the negative zone representing the dominance of imports over exports in the measurement of the net exports.

The graph of real GDP growth rate and inflation rate is as follows:

The graph of real GDP growth rate and unemployment rate is as follows:

The graph of real GDP growth rate and exchange rate is as follows:

The graph of real GDP growth rate and real interest rate is as follows:

The graph of real GDP growth rate and rate of change of net exports is as follows:

The graph of inflation rate and unemployment rate is as follows:

The graph of inflation rate and exchange rate is as follows:

The graph of inflation rate and real interest rate is as follows:

The graph of inflation rate and the rate of change of net exports is as follows:

The graph of unemployment rate and exchange rate is as follows:

Exchange Rate

The graph of unemployment rate and real interest rate is as follows:

The graph of unemployment rate and rate of change of net exports is as follows:

The graph of exchange rate and real interest rate is as follows:

The graph of exchange rate and rate of change of net exports is as follows:

 The graph of real interest rate and rate of change of net exports is as follows:

There is an inverse relationship between real GDP growth rate and inflation. As inflation increases, the real GDP growth rate falls and vice versa. This is because the real GDP is estimated by weighing the nominal GDP against the GDP deflator or the inflation rate. Thus when the inflation rate increases, the real GDP would fall (Kiley). If the government undertakes an expansionary fiscal policy, there will be a rise in the general price level in the economy. This would give rise to inflation and though the nominal GDP increases, the real GDP would fall because of the increase in price level (Blanchard and Johnson, 2012).

The direction of movement of the real GDP and the unemployment rate is mostly the same with occasional fluctuations. However, the growth rate of real GDP is much more fluctuating than the unemployment rate. As the government adopts an expansionary fiscal policy, the aggregate demand increases and this leads to a rise in the general price level in the economy (Goo-Mook Chai 319-342). This in turn might lead to fall in the demand and hence a fall in the demand for labour which ultimately leads to a rise in the unemployment rate (Zagler). However, generally when the aggregate demand rises, the increased demand for output will lead to increased demand for labour thereby reducing the unemployment rate (Mankiw, 2012). The change in the unemployment rate would depend on the relative changes in the two cases.

The exchange rate as compared to the growth rate of real GDP does not reflect any specific relationship with the latter. When the exchange rate rises, that is, the currency depreciates (Ram 415-425); there will be an increase in the demand for exports which become cheaper in the international economy and a fall in the demand for imports which become relatively more expensive (Bruno and Easterly 3-26). This will lead to a rise in the aggregate demand and hence the real output. Thus the real GDP grows when the exchange rate increases. The government may influence the exchange rate in order to achieve this target (Cordero).

Real Interest Rate

There seems to be a fairly positive relationship between the real interest rate and the real GDP growth rate in the Australian economy. In general, when the government adopts an expansionary monetary policy by increasing the level of money supply, given the demand for money, the interest rate would fall (McLean 34-35). This leads to an increase in the level of investment because the cost of investment falls. Thus there will be an increase in the aggregate demand which ultimately leads to an increase in the GDP and the real GDP. This will ultimately lead to an increase in the real GDP growth rate. Thus, theoretically, there will be an inverse relationship between the real interest rate and the real GDP growth rate. However, in the Australian economy, over the given period of time, the real GDP growth rate and the real interest rate have moved in the same direction (Dornbusch, Fischer and Startz, 2013).

The growth rate of real GDP as compared to the rate of change of net exports is very low and hence the exact relationship between the two is not reflected. When government policies impose devaluation on the exchange rate, the Australian dollar will become relatively cheaper compared to the international currency (Devereux and Connolly 206-13). Hence the demand for exports from Australia would increase and the demand for imports into Australia would fall (Awokuse 389-395). Both of these changes will lead to an increase in the aggregate demand in Australia. Thus the output will increase and hence there will be an increase in the real GDP given the price level. This will ultimately lead to an increase in the growth rate of real GDP in Australia (Rodrik, 365-412).

 As illustrated in the above cases, the real GDP of the Australian economy is expected to grow constantly in the recent years given the current economic conditions. In the recent years, the growth rate of the real GDP of Australia as registered positive figures (Thorpe, Leita and o 75). Given that the price level is stable over the coming years and that the unemployment rate is controlled, the real GDP would grow in the recent future. Thus, Australia is likely to experience an expansion soon or the macroeconomic condition may remain stable. However, no recession can be forecasted given the current macroeconomic conditions (Mankiw, 2012).

References

Blanchard, O. and Johnson, D. (2012). Macroeconomics. 6^th ed. New York: Pearson Education.

Dornsbusch, R. Fischer, S. and Startz, R. (2013). Macroeconomics. 12^th ed. New York: McGraw Hill Education.

Mankiw, N. (2012). Macroeconomics. 8^th ed. New York: Worth Publishers.

Awokuse, Titus O. “Causality Between Exports, Imports, And Economic Growth: Evidence From Transition Economies”. Economics Letters 94.3 (2007): 389-395. Web. [Accessed 13^th May 2017].

Bruno, Michael, and William Easterly. “Inflation Crises And Long-Run Growth“. Journal of Monetary Economics 41.1 (1998): 3-26. Web. [Accessed 13^th May 2017].

Cordero, José Antonio. “Economic Growth Under Alternative Monetary Regimes: Inflation Targeting Vs Real Exchange Rate Targeting”. SSRN Electronic Journal n. pag. Web. [Accessed 13^th May 2017].

Dani Rodrik. “The Real Exchange Rate And Economic Growth”. Brookings Papers on Economic Activity 2008.2 (2009): 365-412. Web. [Accessed 13^th May 2017].

Devereux, John, and Michael Connolly. “Growth And The Real Exchange Rate”. Journal of Economic Integration 10.2 (1995): 206-13. Web. [Accessed 13^th May 2017].

Goo-Mook Chai. “The Effects Of Unemployment Benefits On Unemployment, Labour Force Participation, And Economic Growth”. Social Welfare Policy 36.4 (2009): 319-342. Web. [Accessed 13^th May 2017].

Kiley, Michael T. “Monetary Policy Actions And Long-Run Inflation Expectations“. SSRN Electronic Journal n. pag. Web. [Accessed 13^th May 2017].

Ram, Rati. “Exports And Economic Growth: Some Additional Evidence”. Economic Development and Cultural Change 33.2 (1985): 415-425. Web. [Accessed 13^th May 2017].

Thorpe, Michael, Nuno Carlos Leita, and N.A. o. “Economic Growth In Australia: Globalisation, Trade And Foreign Direct Investment”. Global Business and Economics Review 16.1 (2014): 75. Web.

Zagler, Martin. “Aggregate Demand, Economic Growth, And Unemployment”. SSRN Electronic Journal n. pag. Web. [Accessed 13^th May 2017].

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