Australia's Economic Growth
Australia's economic growth has been influenced by a variety of economic activity and trends. The value of national expenditure and output has increased, resulting in an increase in real GDP. Furthermore, a boost in the aggregate supply and aggregate demand for investment, capital, and labor productivity has resulted in beneficial changes in the country's economic expansion and growth (Liddle, 2014). As a result, the Australian government has enacted effective monetary and fiscal policies to boost and sustain the country's economic growth. Additionally, the government has implemented strategies of regulating potential costs that hinder the economic growth such as inflation, environment costs, and current budget deficit (Graves and Shan, 2014). This essay will evaluate how demographic changes, economic growth rates, inflation/deflation expectation, and monetary and fiscal policy affect the economic growth in Australia.
Demographic Changes
Demographics play a key role in the economic output by influencing capital stock, the state of technology, and labour stock (Yoon, Kim, and Lee 2014). Therefore, the connection between demographic changes and per capital GDP growth can be increased through the disintegration of the total output of the economy such as (services and goods) into various age cohort. Fleming and Measham (2015) suggested that Australia's population in future is predictable to age due to two distinct reasons; an increase in the life expectancy and a decrease in fertility rate. Therefore, demographic changes affect the variables that influence the aggregate level of capital accumulation in the Australia's economy. According to neoclassical economic theory, the rate of labour force growth tends to be connected with the aggregate population ageing that reduces the demand of for domestic saving and investment (Liddle 2014). Thus, demographic change implies that the investment in stock markets highly depends on the aggregate data of the overall population within Australia (Yoon, Kim, and Lee 2014).
Demographic changes influence the demand for various portfolios in financial markets and product markets due to its impacts on savings and consumption. According to Fleming and Measham (2015), old, middle-aged, and young savers would seek in holding their resources in different forms such as bonds or liquid assets. However, it is indistinguishable whether the relationship between demographic changes and price changes affect demand for goods and services. Stephen (2017) explains that demographic changes affect goods and services in different age segments. For instance goods for seniors tend to have low demand in a market segment for youth and children. In Australia, the ageing population will increasingly affect both food consumption patterns and aggregate demand. Between 1990 and 2010, the percentage of the population over 85 has doubled from 0.9 per cent to 1.8 per cent respectively. Statistics show that this is anticipated to rise to between 4 and 5.5 percent by 2056. Ultimately, this will increase the demand for food access and nourishment in the aged care sector, and also the demand for health care and other service providers (Jack 2014).
The effects of population age in Australia will be experienced directly by the labour markets. Fleming and Measham (2015) claimed that as fertility rates decrease, the development of the labour population will also reduce. Hence, this will reduce the supply of labour in markets leading to restrict the potential growth of the aggregate Australian economy. For instance, the annual growth rate of the population aged between fifteen years and sixty-four inclusive reduced from the roughly 2% to 0.8% in the 1980 and 2007 respectively (Fleming and Measham 2015). Moreover, the population age gap is projected to further reduce in the future. Liddle (2014) suggests that these demographic changes will influence the supply of labour hence the Australian economy will expect a lower rate of GDP growth. Nevertheless, the Australian government is trying to invest in youth to create equilibrium in the labour market.
Economic Growth Rates
The Australian financial market has significantly injected its economy. Liddle (2014) shows that there is an existing evidence on how economic growth rates influence financial development and growth of stock markets in Australia. Both the capital market and money market have influenced the aggregate GPD growth. The capital market gives Australia a market-based monetary framework that is essential to increase the growth of money supply. Moreover, the liquidity of securities exchanges influences development. Liddle (2014), confirms that Australia has one of the created budgetary frameworks around the globe with an energetic securities exchange for market capitalization. As a result, many investors feel safe to invest their capital in Australia.
The stock markets in Australia gives an accurate and timely information concerning how firm operate and influences an investor by increasing returns. Additionally, stock trade may bring down the cost of exchanging the ownership that benefits an investor through impacting his or her attention in investing in equality financial sectors hence enhancing the Australian economy claimed Liddle (2014). Moreover, securities exchange can increment monetary growth through diminishing liquid assets possessions by enhancing the rate of physical capital growth.
The Australian economy has been growing faster than expected at an annual rate of 3.1% due to a tremendous performance from net exports. This was beyond the expected since the majority of economists had been anticipating a growth rate of between 2.75% to 3% (Gareth 2012). As a result, many investors saw a potential in the export sector of the Australian economy. However, the increase in the economic growth rate does not reflect the income per capital of the Australians. Exports of goods and services rose 2.2 percent with non-rural exports increasing to 2.6 percent. The forestry, agriculture, and fishing industries rose the most by 8.3 percent (Gareth 2012)
Inflation Expectations
The economy of Australia has been affected by both inflation and deflation. Inflation is the price increase of goods and services while deflation is the reduction of the price of goods and services (Plumb, Kent, and Bishop 2013). Therefore, deflation tends to enhance the purchasing power which increases the value of money while inflation reduces the consumers' purchasing power. In Australia, there are different causes of inflation, but the main on is the reduction of aggregate supply and an increase in aggregate demand. Behlul, Hyndman, and Vahid (2017) illustrated that the increase in demand is influenced by the improvement in the private investment sectors and increase in disposal income, money supply, and exports. These economic factors increase the monetary value of the Australian dollar which on the other hand increase the aggregate demand. As a result, investors increase their supplies to meet the augmented demand.
Inflation has significantly affected the rate of unemployment in the Australian economy. Considering the Philips curve, unemployment and inflation have an inverse relationship to the growth of an economy (Mikolajun and Lodge 2016). The Australia's inflation rate is magnificently low below the RBA target brand of 2 to 3 percent. This has resulted in a weak economy and higher unemployment rate. According to Stephen, higher inflation suggests that the economy is strong and optimistic consumers are willing to pay higher due to their financial stability (2017). As a result, this attracts investors to increase their supply to meet the increasing spending habit by consumers. However, the weaker economy and low spending habits have resulted in the unemployment rate in Australia, thus, discouraging investment too.
Monetary and Fiscal Policy
The fiscal and monetary policy involves government intervention as well as financial markets that include the utilisation of federal budget in achieving Australian's national economic objectives (McCombie and Thirlwall 2016). Wanna (2015) added that the national government of Australia had placed discretionary policies to attain internal economic stability by creating employment and enhancing equal distribution through increasing national government spending.
The Australian labour sector introduced a huge monetary and fiscal incentive approaches in dealing with the international recession. Wanna (2015) suggested that the main focus of these approaches was to reinforce the level of aggregate demand before the global downturn. However, between the year 2008 and 2010, the economic stimulus was effectively impacted by the fiscal and monetary policy. As a result, many investors felt attracted due to the promising economic condition that prevailed. Government plays an important role through fiscal policies to the economy of a country.
The fiscal and monetary policy has an important influence on the aggregate level of unemployment that follows the nature of Australian economic growth argued Wanna (2015). Therefore, with the economic growth, the level of aggregate demand enhances, thus, reducing the rate of unemployment since labour is a derived demand. For instance, the in 2009 till 2010, the implementation of expansionary policy moderated the shutdown of the Australian economy as some results of the global financial crisis (Arrow and Kruz 2013).
Conclusion
Australia has higher potentials to stabilise its economy and solve the economic challenges that affect its GDP as well as the welfare of its citizens. It is important for the government to consider the trend in the demographic changes, spending habits, unemployment rates and the performance of both monetary and product markets to come up with effective fiscal and monetary policies. This will create incentives for investors and also increase the quality of life to the consumers.
References
Arrow, K.J. and Kruz, M., (2013). Public investment, the rate of return, and optimal fiscal policy (Vol. 1). Routledge.
Behlul, T., Panagiotelis, A., Athanasopoulos, G., Hyndman, R.J. and Vahid, F., (2017). The Australian Macro Database: An online resource for macroeconomic research in Australia.
Fleming, D.A. and Measham, T.G. (2015). Local economic impacts of an unconventional energy boom: the coal seam gas industry in Australia. Australian Journal of Agricultural and Resource Economics, 59(1), pp.78-94.
Gareth, H. (2012). Economy is growing faster than expected at 3.1%, but news is not all good (Online ) https://www.theguardian.com/business/2016/jun/01/australias-gdp-growth-rises-by-11-in-march-quarter-taking-annual-rate-to-31 ( Retrieved 3rd, May 2017)
Graves, C. and Shan, Y.G. (2014). An empirical analysis of the effect of internationalization on the performance of unlisted family and nonfamily firms in Australia. Family Business Review, 27(2), pp.142-160.
Liddle, B. (2014). Impact of population, age structure, and urbanization on carbon emissions/energy consumption: evidence from macro-level, cross-country analyses. Population and Environment, 35(3), pp.286-304.
McCombie, J. and Thirlwall, A.P. (2016). Economic growth and the balance-of-payments constraint. Springer.
Mikolajun, I. and Lodge, D. (2016). Advanced economy inflation: the role of global factors.
Plumb, M., Kent, C. and Bishop, J. (2013). Implications for the Australian economy of strong growth in Asia. Reserve Bank of Australia.
Stephen, K. (2017). Australia’s economic malaise comes down to dreadful decisions. (Online) https://www.theguardian.com/commentisfree/2017/jan/23/australia-economy-reserve-bank-interest-rates-inflation-unemployment (Retrieved 1st, May2017)
Wanna, J. (2015). Australian and New Zealand Responses to the ‘Fiscal Tsnumani’of the Global Financial Crisis: Preparation and Precipitous Action with the Promise of Consolidation. The Global Financial Crisis and Its Budget Impacts in OECD Nations: Fiscal Responses and Future Challenges, ed. John Wanna, Evert A. Lindquist, and Jouke de Vries. Cheltenham, UK: Edward Elgar, pp.92-117.
Yoon, M.J.W., Kim, M.J. and Lee, J. (2014). Impact of demographic changes on inflation and the macroeconomy (No. 14-210). International Monetary Fund.
