Essay On Memo On The Current Australian Economy

This memo is on the current Australian economy and discusses the key macroeconomic indicators and their movements that determine the ongoing economic phase in Australia. The discussion thoroughly draws the intuition and explanation behind the fluctuations of these key indicators and in addition the memo also includes the relevant diagrammatic illustrations of the explanation. At the end, it draws a conclusion that briefs the current economic phase of Australia as well as the possible economic phase that the nation may encounter in the upcoming days. 

 

Following the provided article on the opinion “Coming down to Earth: The economy’s not as strong as we’ve been led to believe” by the Sydney Morning Herald (2022), there are several economic factors that have come up in the discussion of the economic performance of Australia in the current times. The key factors found are - the real gross domestic product (real GDP), the factors of national income, such as government consumption spending or government expenditure, consumption and savings of the household, investments in the form of inventories acquired by the retailers and many businesses.

 

Following the data revealed by the Australian Bureau of Statistics, the real GDP representing the nation’s total production of goods and services (RBA, 2022), increased by 0.8 percent since the first quarter of this year (ABS, 2022). The aggregate growth of the real GDP in the mentioned quarter took place due to a number of factors, of which rise in consumer expenditure or household spending by 1.5 percent was one of the foremost reasons. Another factor to the growth in this quarter was the government expenditure, a vast rise by 2.7 percent of which contributed to 0.6 percent points to the aggregate growth. Another positive contribution to the growth was through the rise in the inventories procured by the retailers and the businesses around the nation that contributed to about a percentage point to the aggregate growth in real GDP (The Sydney Morning Herald, 2022). All these key macroeconomic indicators are directly correlated to the real GDP of an economy (RBA, 2022).

 

The above discussed positive contributors of the aggregate growth rate must have resulted from the eventual rise in the aggregate demand (AD) for goods and services which in turn indicates a rise in real GDP (Mankiw, 2020). This occurrence is illustrated by the AD-AS framework below. 

 

Figure 1: AD-AS Framework 

 

Clearly, from the illustration above, the overall rise in consumption expenditure, government spending and growth in inventories are reflected by the rightward or upward shift of the aggregate demand (AD) curve, which further indicates the growth in real GDP (Mankiw, 2020).

 

Nonetheless, additional growth by 1.4 percent in investment spending on businesses related to plants and equipment should have contributed to the aggregate growth, however, for the Australian economy the growth in the investment must be even bigger and faster to substantially impact the aggregate growth rate (The Sydney Morning Herald, 2022).

 

Apart from the key economic indicators discussed above that were positive contributors to the aggregate growth of the Australian economy, there are a few key macroeconomic indicators which had a negative contribution to the aggregate growth, first and foremost was the indicator, net exports, which is calculated by the gap between exports and imports and formulated as 

 

 

Net Exports = Exports - Imports, which means higher exports and lower imports will positively contribute to the aggregate growth; higher imports and lower exports will negatively contribute to the aggregate growth rate. Data reveals that a 0.9 percent fall in export volume reduced the growth rate by 0.2 percent. Furthermore, an additional 8.1 percent rise in import volumes reduced the aggregate growth rate by 1.5 percentage points (ABS, 2022). 

 

 

This memo figures out and discusses the key macroeconomic indicators which have correspondingly positive and negative contributions to the aggregate growth of the Australian economy. The phase the economy is in currently majorly revolves around the mentioned macroeconomic indicators themselves. The increase in government expenditure on health, the household consumption spending, and increased inventories of the retailers and the businesses jointly contributed to the aggregate growth by more than 1 percent point. However the overall growth rate was 0.8 percent. This means the negative contribution of the net export was vivid.

 

ABS. (2022). Australian National Accounts: National Income, Expenditure and Product, March 2022. Australian Bureau of Statistics. Retrieved 6 July 2022, from https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release. 

 

 

Mankiw, N. G. (2020). Principles of macroeconomics. Cengage Learning.

 

 

RBA. (2022). Economic Growth | Explainer | Education. Reserve Bank of Australia. Retrieved 6 July 2022, from https://www.rba.gov.au/education/resources/explainers/economic-growth.html. 

 

 

The Sydney Morning Herald. (2022). The Australian economy is not as strong as we’ve been led to believe. Smh.com.au. Retrieved 6 July 2022, from https://www.smh.com.au/business/the-economy/coming-down-to-earth-the-economy-s-not-strong-as-we-ve-been-led-to-believe-20220602-p5aqpi.html.