Addressing Australia

Why Does Australia Have An Affordable Housing Problem And What Can Be Done About It?

Gross Domestic Product

This report tries to compare the various macroeconomic indicators like economic growth, unemployment rate, inflation rate and trade, which includes terms of trade, current account, net foreign debt and the value of the Australian dollar of the year 2018 with the values of the year 2017. The comparison is made on quarterly basis that that is the third quarter of 2017 is compared with the second quarter of 2018. Further, three major issues concerning the Australian economy is described in details in the report.

The Gross Domestic Product (GDP) of the country is the value of the final goods and services that are produced with in the country. The GDP is a measure for the economic performance of the country and is generally conducted quarterly or annually (O’Neill 2014). Therefore, GDP is the major economic indicator for the country. Here in this report the growth in the GDP has been compared over the described quarterly horizon. The percentage change in the Gross Domestic Product in the Australian economy was recorded to be 0.9 percent in the March quarter of 2018 to June 2018. While that for the March quarter 2017 to June quarter of 2017 it was 0.6 percent.  The gross domestic product was seasonally adjusted to get the desired results. From the above data, it can be said that the economy of Australia grew by 3.4percent from June quarter 2017 to June quarter 2018. The rate of growth in July 2017 was 1.9 percent while that has increased to 3.4 percent in July 2018 (Abs.gov.au 2018). This is by far the highest as compared to the previous two years. A diagrammatical analysis to explain the above said events are shown as follows.

(Source: Tradingeconomics.com 2018)

The unemployment rate of a country shows the number of people who are actively searching for jobs but are unable to get a job in the economy. The unemployment rate is calculated by dividing the number of people who are unemployed divided by the total amount of labour force in the economy (Sinclair 2017).  The seasonally adjusted rate of unemployment in Australia was 5.6 percent in August 2017. The rate of unemployment has decreased to 5.3 percent in July 2018. The country has recorded the lowest rate of unemployment in the month of July 2018 (Abs.gov.au  2018).. The number of people unemployed has decreased by 5700. The rate of labour force participation has decreased by 0.1 percent and the employment to population has also decreased by 0.1 percent. The graphical analysis below shows that rate of growth of unemployment rate in the month of August 2017 is 5.6 percent and that in July 2018 has decreased to 5.3 percent (Abs.gov.au  2018).

Unemployment rate

(Source: Tradingeconomics.com 2018)

The definition of inflation rate refers to an increase the prices of the commodities over a period of time. The comparison made in the report describes rise in the inflation rate as increase in the Consumer Price Index. The Consumer Price Index is the weighted average of the prices of various goods that are consumed by the individual and falls in the consumption basket (Barro 2013).

(Source: Tradingeconomics.com 2018)

From the above graph plotted on the basis of the data from the ABS, the inflation rate rose to 2.1 percent in the June quarter of 2018. This is by far the highest as compared to that of the previous two years. In the second quarter of 2017 the inflation rate was 1.9 percent (Abs.gov.au  2018). The major reason for this high rise in the inflation rates is mainly due to the increase in the costs of the transportation.

Terms of Trade refers to the ratio between the country’s prices of export to that of the price of imports. The calculation of this ratio is very simple which is obtained by divided the export prices by the import price and further multiplying it by 100. When the country’s terms of trade is less than 100 percent then the capital accumulation of the country is less than the amount of capital that is entering the country. On the other hand if the rates are more than 100 percent then the country’s capital accumulation occurring from exports is more than the  is more than that from the exports. The graphical analysis of the data is provided below.

(Source: Tradingeconomics.com 2018)

In the third quarter of 2017, the terms of trade are 86 points and that for the second quarter of 2018 the value is 87.7 points. In the previous quarter of 2018 the value was 89.1 points. The highest value was reaches in the first quarter of 2017 (Wits.worldbank.org  2018). Thus, there has been a substantial fall in the terms of trade during the last one year.

Current account refers to the transactions that a country conducts with the rest of the world. These net transfers included good and services that are traded, the country’s net earnings and the net transfer payments over a certain period of time (Deardorff 2014). In context to that of the Australian market, the current account is in deficit. However, the extent of this deficit has increased from the third quarter of 2017 to second quarter of 2018. In the third quarter of 2017 the current account deficit was 12453 million Australian dollar and that in the second quarter of 2018 it was 13472 million Australian dollar (Wits.worldbank.org 2018). The lowest was in the first quarter of 2017. The graphical analysis has been provided below.

Inflation rate

(Source: Tradingeconomics.com 2018)

External debt is the money that a country borrows from outside sources. These outside sources may be International Monetary Funds, Work Bank or other international financial institutions (Stiglitz 2016). In context to Australia the amount of gross foreign debt has increased from the third quarter of 2017 to second quarter of 2018. In the second year of 2018 the value recorded was near to 2050000 million Australian dollars where as in 2017 it was around 1850028 million dollars (Wits.worldbank.org 2018). Therefore, the net foreign debt has increased during the last one year. The graphical analysis of the ABS data is plotted in the graph provided and is attached below.

(Source: Tradingeconomics.com 2018)

The value of the Australian Dollar is calculated by the exchange rate. In the analysis below, value of Australian dollar per US dollar has been taken into account. The corresponding graph has been provided below.

(Source: Tradingeconomics.com 2018)

The rate in the third quarter of 2017 was around 0.78 and that in the second quarter of 2018 it was 0.74 (Wits.worldbank.org 2018). Therefore, the exchange rates have decreased thus the Australian Dollar has become less valuable. This is the present scenario in context to the exchange rate of Australia.

The major economic and financial issues that may might be a major problem for the Australian economy are Unemployment, Poverty and the gap between the rich and the poor and financial, economic and cost of living problems. A detailed discussion is provided in this section regarding these problems.

The present unemployment rate in Australia 5.3 percent and one might argue that the rate is low as compared to the other years. However, the scenario is quite different. The immigrants who come to Australia in order to pursue higher studies play an important role in the job market. Most of the Australian youths are unable find jobs. The young person of Australia is deprived from jobs. The immigrants are given lots of support by the Australian government even financially, thus the native Australians are struggling (Collins 2013). Another important factor that can be indicated is that the Chinese are buying less from the Australians and thus employment is down in major sectors like that of the agriculture and minerals.  

Another important factor is the poverty and widening of the gap between the rich and the poor. As seen from the studies conducted by Leigh 2013 the rich are getting richer whereas the poor are becoming poorer. These rich people include big business men who are effectively controlling various sectors of the country.  On the other hand, the poor people are getting no such benefits from the government.

Terms of Trade

Finally yet importantly, this is one of the major problems faced by the Australians. The factors that are included in this segment are housing affordability, inflation and financial problems. The housing crisis has been a long problem with respect to the Australian economy. People are unable to find dwellings. Again, the arrival of immigrants and the lack in supply of housing are important factors for the rise of this problem (Yates 2016). Prices of electricity has been rising tremendously in Australia which a major concern (Simshauser and Nelson 2013). Again, the financial debt of the government has also been increasing which is another problem for the Australian economy. There exists economic instability in the Australian economy, which needs to be removes for the maximization of social welfare for the residents.

Conclusion

From the above analysis, it can be concluded that there has been a growth in the annual GDP of the Australian economy and by far have reached the highest in 2018. The unemployment rates have decreased significantly. However, the inflation rates have increased indicating a price rise in some specific goods and services. The terms of trade have decreased, the current account and the external debt of the economy have increased significantly. The values of Australian dollar have also decreased in the present year. This shows that the Australian economy is operating poorly in the international market. One might argue that the increase in the GDP or the growth in the Australian Sector is a good thing. However, this is not the phenomenon as GDP is never a good measure of social welfare. Therefore, the Australian government needs to rethink the policies and implement efficient policies in order to mitigate these problems.

References

Abs.gov.au. (2018). 5206.0 - Australian National Accounts: National Income, Expenditure and Product, Jun 2018. [online] Available at: https://www.abs.gov.au/ausstats/[email protected]/mf/5206.0 [Accessed 9 Sep. 2018].

Abs.gov.au. (2018). 6401.0 - Consumer Price Index, Australia, Jun 2018. [online] Available at: https://www.abs.gov.au/ausstats/[email protected]/0/938DA570A34A8EDACA2568A900139350?Opendocument [Accessed 9 Sep. 2018].

Barro, R.J., 2013. Inflation and economic growth. Annals of Economics & Finance, 14(1).

Collins, J., 2013. Rethinking Australian immigration and immigrant settlement policy. Journal of Intercultural Studies, 34(2), pp.160-177.

Deardorff, A.V., 2014. Terms of trade: glossary of international economics. World Scientific.

Furceri, D., 2015. Capital account liberalization and inequality. International Monetary Fund.

Leigh, A., 2013. Battlers and billionaires: The story of inequality in Australia (Vol. 1). Black Inc..

O’Neill, D., 2014. Gross domestic product. Degrowth: A vocabulary for a new era, 103.

Simshauser, P. and Nelson, T., 2013. The outlook for residential electricity prices in Australia's national electricity market in 2020. The Electricity Journal, 26(4), pp.66-83.

Sinclair, S., 2017. Urbanisation and labour markets in developing countries. Routledge.

Stiglitz, J.E., 2016. Euro. Publica.

Wits.worldbank.org. (2018). Australia Trade Statistics | WITS. [online] Available at: https://wits.worldbank.org/CountryProfile/en/AUS [Accessed 9 Sep. 2018].

Yates, J., 2016. Why does Australia have an affordable housing problem and what can be done about it?. Australian Economic Review, 49(3), pp.328-339.