Economic Growth In Australia Essay

Australia's Eco Growth Rate Essay

Australia's economic performance in the latter half of the 1990s to the present day has been highly competitive against the industrialised OECD nations of the world. Indeed, although constrained by a recession in the early 1990s, Australia's performance until recently has been a period of relatively strong economic growth.

In terms of percentage annual change in the volume of real GDP, Australia emerged from the 1990s to consistently uphold economic growth for almost a decade, only to experience its first contraction in late 2000. Having recorded growth exceeding 4%pa prior to the year 1995, Australia continued to sustain growth from 1995-97, albeit to a slightly lesser extent. From 4.5% in 1995-96, growth fell to 3.8% in 1996-97, however still above the OECD 7's average of 3.2%. Australia's performance in the ensuing years is most remarkable considering that the Asian Crisis between 1997-99 saw most economies in the region experience recession in 1998. Whilst other OECD nations experienced an average economic growth slowdown to 2.8%, Australia went on to record 3 consecutive years of growth above 4% between 1997-98 and 1999-00.

However, in the second half of 2000, as Australia entered the 10th year of its economic growth cycle, a dramatic slowdown occurred. Although the Government had predicted 4% growth in 2000-01, Australia instead recorded the first contraction in a decade, the last quarter of the year resulting in a 0.6% contraction. Growth is now expected to be 2% for 2001, however the government is still confident that the economic downturn will be short lived, predicting that economic growth will rise from 2% in 2000-01, to 3.25% in 2001-02. The figures in the past 6 years have been well above the nation's historical average of 3%pa in the 1970s and 80s. The uses of different government policies have contributed heavily towards determining Australia's growth rate.

Monetary Policy is one of the federal government's principal macro-economic policy instruments. By changing the cash rate, the RBA can indirectly affect the term structure of interest rates in the financial system, which in turn will affect the level of spending, inflation, output and employment in the economy.

Australia had experienced five distinct interest rate cycles in the 90's. During 1992-94, the cash rate was lowered in the first half of 1993 to stimulate employment growth and then remained unchanged for most of 1994. This effectively sped up the growth rate to above 4%. Yet in late 1994, the RBA, concerned with rising inflationary expectations and import spending associated with higher economic growth, raised the cash rate three times from 4.7% to 7.5% which slowed down the economy from 4.5% to 3.8%. With inflation within the RBA's target band and unemployment still high, the RBA eased monetary policy six times between July 1996 and December 1998 (bringing the...

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Economic Conditions of the Australian Economy

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Economic Conditions of the Australian Economy

Over the past five years the Australian economy has gone through many changes experiencing both the peaks and troughs associated with business cycle.

Five years ago, in the middle of 1997 Australia’s economic growth had begun to upturn after a period of recession during the ’96 year. This was unmistakably shown through the composite indicators of retail trade, dwelling investment and Australian share market valuations, all concurring with one another and demonstrating the effects of an upturn in economic growth.

This economic growth continued to increase through ‘98 and ‘99, partly being attributed to the weakening Australian dollar that allowed for the opening up and increasing market shares held by Australian exports on world markets. This was the case, as the reduction in the Australian dollar’s value, triggered decreases in the prices of our exports for foreign buyers, thereby increasing demand for our products and increasing the amount of money and investments coming into Australia. This therefore resulting in the aforementioned increases economic growth when combined with the high levels of employment and consumer confidence.

This economic growth didn’t however continue for long, with the economy peaking just before the start of the year 2000 followed by a sharp downturn that resulted in a temporary recession occurring around the middle of the year. This erratic behavior, most pronounced in retail trade, can be explained by the effects of both the millennium bug and the introduction of a general consumption tax in the form of the GST. The millennium bug caused much panic and with it bought panic spending especially in the IT sector thereby over inflating an already close to booming economy and after the non-event that the millennium (or Y2K) bug caused spending slumped and then further slumped due to the holding back of consumer spending on big ticket items such as cars and houses until the introduction of the GST.

In spite of the aforementioned pre GST economic slump, in the second half of 2000, with the implementation of the GST and the advent of the Olympics, the economy quickly boomed again before experiencing another sharp downturn followed by an equally sharp upturn. The initial upturn was due to increased post GST spending followed by huge foreign cash injections into the Australian economy as a result of the Sydney Olympic Games. The Olympics spending however was only temporary and consequently caused a post Olympics downturn, which was quickly countered by the introduction of the first homeowners grant.

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This grant of $14,000 for people building their first home greatly propped up the housing industry through encouraging many people who would not have otherwise bough houses to do exactly thereby creating upturns in retail sales and hence economic growth.

As the year 2001 continued by, the Australian economy stayed strong with the Australian government helping to sustain its growth through lowering interest rates and as such causing increases in investment. This helped the Australian economy to not only defy the global down turning trend, growing at 4.1%, some ten times the OECD average, but also to weather the far reaching effects of the September 11 attacks that not only contributed to the American downturn but also greatly affected many global markets. 2001 also saw a house price boom in Australia with the prices of established residential properties rising an average of 3.8% in the December quarter.

Now in the year the year 2002 the Australian economy continues to be quite strong with no further predicted interest rate cuts, though growth is set to ease to around 3% as the housing market slows slightly. The Australian dollar is on the up and set to reach US 55c by the end of the year and global activity is predicted to recover as overseas share markets begin to regain past value likely pushing Australian share market prices above the records posted in the March quarter.



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