Economic Growth
Economic growth is the increase of the value of goods and services produced in an economy over a period of time, measured by changes in real GDP (Dixon & O’Mahony, 2014). Australia’s economic growth rate has been declining over recent years and is currently at 2.5% (RBA, 2015). As shown by FIG 1, overall the trend of GDP growth has gradually been declining over recent years with peaks of 4.5% in 1995 and a record low of 1.5% in 2008 (ABS, 2015) and has been forecast to continue decreasing over the next few years.
In 2008, during the Global Financial Crisis (GFC), Australia’s GDP was 1.5%. This was caused by a number of factors. Firstly, consumer’s future expectations were low as consumers worried about whether they were going …show more content…
The key measure of external stability is the current account deficit. Historically, Australia’s CAD has been increasing over the past decades being 1.1% of GDP in 1970s to 4.4% in the 2000s (RBA, 2015). Currently, CAD is 3.2% of GDP and is forecasted to be 4% next year. Australia’s persistent CAD has been an external stability issue for Australia and factors that contribute to high CAD include narrow export base, manufacturing competitiveness, and accumulated foreign debt.
Australia has a narrow export base which means that Australia’s exports are heavily titled towards primary commodities. For example, Australia’s abundance of coal and minerals. This means that Australia has a limited range of products available for export.
A depreciation of the Australian dollar Traditionally, Australia has been a low savings rate economy. This means that Australia has a high need for foreign savings to finance domestic investment as domestic spending exceeds domestic output. The mining boom in 2011 also attracted foreign investment, which is crucial as Australia’s domestic savings rate of 10% is not sufficient. Shown by FIG 7, Australia’s foreign borrowings has increased dramatically over the last decades, from 5.5% in 1989 to 19% in 2011 (RBA, …show more content…
As competitiveness rises, export performance improves. This reduces CAD and the need for domestic firms and the government to borrow and thus incur foreign debt.
From 2011 to now, the value of the Australian dollar has been depreciating from 1.1 to 0.8 as shown in FIG 8. This depreciation will allow exporters to sell their products at lower international prices. As a result, this will make Australian exports more internationally competitive. As I said above, international competitiveness is indicative of external stability. Thus as Australia’s international competitiveness rises, so does Australia’s external
Economic growth is the increase of the value of goods and services produced in an economy over a period of time, measured by changes in real GDP (Dixon & O’Mahony, 2014). Australia’s economic growth rate has been declining over recent years and is currently at 2.5% (RBA, 2015). As shown by FIG 1, overall the trend of GDP growth has gradually been declining over recent years with peaks of 4.5% in 1995 and a record low of 1.5% in 2008 (ABS, 2015) and has been forecast to continue decreasing over the next few years.
In 2008, during the Global Financial Crisis (GFC), Australia’s GDP was 1.5%. This was caused by a number of factors. Firstly, consumer’s future expectations were low as consumers worried about whether they were going …show more content…
The key measure of external stability is the current account deficit. Historically, Australia’s CAD has been increasing over the past decades being 1.1% of GDP in 1970s to 4.4% in the 2000s (RBA, 2015). Currently, CAD is 3.2% of GDP and is forecasted to be 4% next year. Australia’s persistent CAD has been an external stability issue for Australia and factors that contribute to high CAD include narrow export base, manufacturing competitiveness, and accumulated foreign debt.
Australia has a narrow export base which means that Australia’s exports are heavily titled towards primary commodities. For example, Australia’s abundance of coal and minerals. This means that Australia has a limited range of products available for export.
A depreciation of the Australian dollar Traditionally, Australia has been a low savings rate economy. This means that Australia has a high need for foreign savings to finance domestic investment as domestic spending exceeds domestic output. The mining boom in 2011 also attracted foreign investment, which is crucial as Australia’s domestic savings rate of 10% is not sufficient. Shown by FIG 7, Australia’s foreign borrowings has increased dramatically over the last decades, from 5.5% in 1989 to 19% in 2011 (RBA, …show more content…
As competitiveness rises, export performance improves. This reduces CAD and the need for domestic firms and the government to borrow and thus incur foreign debt.
From 2011 to now, the value of the Australian dollar has been depreciating from 1.1 to 0.8 as shown in FIG 8. This depreciation will allow exporters to sell their products at lower international prices. As a result, this will make Australian exports more internationally competitive. As I said above, international competitiveness is indicative of external stability. Thus as Australia’s international competitiveness rises, so does Australia’s external