Economic Issues – Economic Growth

Written by admin on September 5th, 2011

Individual industries- structural change and labour markets and focus on increasing productivity and competitiveness. E.g. Work choices policy= productivity.

Recent economic growth trends in Australia :

? Global economic conditions have been favourable since the 90s with low inflation, low interest rates and low unemployment. The macroeconomic stability world wide such as the strong performance of the US economy also contributed towards Australia’s growth. China as a major resource supplier and Australia‘s resources boom at the moment are also favourable.

? Terms of trade (ratio of the price receive for exports to the price we pay for imports) are also good at the moment as they have lifted domestic incomes and increased Australia’s economic growth. Growing resource demands of industrializing economies such as China have also increased commodity prices which has given us the highest level of the terms of trade in 50 years.

? Currency movements have also helped Australia’s economic expansion. Australia’s export growth was threatened in the late 90s and the global downturn of 2001 and depreciated at times because of this. However, a depreciating Aussie dollar allows us to become internationally competitive.

? Sustainable range of economic growth has to maintained so that inflation does not go over 2-3% and does not push our CAD so high. Our current sustainable growth rate of 3% allows us to balance our CAD.

Factors that help sustain Australia’s recent economic growth performance :

? The RBA focuses on maintaining low inflation and have policies in place to keep it below 3%.

? Low inflation keeps interest rates down, which encourages consumer spending. The RBA tries to control consumer spending to lower inflation.

? Productivity growth reached record levels, due to extensive microeconomic reform.

? Business and consumer confidence were boosted by low inflation, encouraging more spending and investment.

? Large increases in asset prices such as shares encourage people to spend more.

? New technology helped raise productivity and efficiency.

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