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Austrialia´S Economic Growth Essay

2240 words - 9 pages

Economic Growth
Economic growth involves an increase in the value of goods & services that an economy produces over a period of time caused by changes in the level of aggregate supply & demand, measured by the annual rate of change in real GDP.
Since Australia’s 1991 recession characterised by negative -0.2% growth, continuous growth stabilised over the past two decades averaging 3.5% per annum but slowed to 3.1% during the 2000s.
As the engine of global growth shifted from USA to China during the 2000s, demand for Australian mineral resources such as coal & iron ore increased by 50% & 80% respectively underpinning growth since 2004 & improving the TOT from 88.6 in 2003 to 153.2 in 2010. ...view middle of the document...

Unemployment peaked at 10.7% in 1992-93 through severe domestic & global recessions. AD fell causing a loss in productivity growth & the closure of many firms thus shedding labour. Structural change & microeconomic reform created new technologies & production techniques, thus workers became obsolete.
Prior to the GFC, unemployment fell below the NAIRU through the resource boom to a low of 4% in February 2008. However, the GFC caused a decrease in demand for commodity exports, domestic consumption & investment spending. As labour is derived from the demand for the goods & services that the resource produces, cyclical unemployment contributed to the peak of 5.8% in October of 2009.
Labour demand falls are not fully captured by official statistics as full-time declines parallel part-time rises. Underemployment rose from 5.7% pre GFC to 7.6% in August 2009 as companies chose to encourage shifts to shared part-time jobs.
Recently, a 10 year high of 6% in January 2014 occurred through the subdued state of economic growth & mining investment. However, workers employed rose by 48,200 in February 2014, the highest monthly increase in 2 years, with a further rise of 18,100 & decline from 6.1% to 5.8% in March 2014. This recent increase in employment has paused the upward trend indicating transitions away from mining catalyse economic activity in retail & housing construction.

Inflation
Inflation is the sustained increase in the general level of prices over a period of time, usually one year, measured by the percentage change in the CPI.
After two decades of high inflation from 1970-1990 peaking at almost 18% in 1975, structural changes, higher productivity growth, microeconomic reform, the recession & the RBA targeting inflation at 2-3% over an economic cycle in 1993 all allowed Australia to sustain headline & underlying inflation averages at 2.7% during 1996-2012.
Underlying inflation peaked at over 4% during 2005-08 through strong economic activity & higher global prices for food, energy & other commodities. Australia’s economy, close to full capacity rose production costs of labour, materials & transport, translating to higher consumer prices.
The GFC reduced inflationary pressures & rate to an all-time low of 1.2% through lower consumer confidence, investment spending, labour demand & wages growth. Furthermore, a stronger exchange rate reduced import prices thus the ability of domestic businesses to raise prices.
However, inflationary pressures re-emerged in 2011 peaking at 3.6%. Headline inflation increased parallel to the prices of fuel, fruits & vegetables. Underlying inflation increased through strong economic activity allowing businesses to raise prices. Furthermore, a tight labour market with wage growth at 4% & labour productivity falling resulted in higher business costs putting upward pressure on prices.
Inflation has begun increasing over recent quarters yet still maintained within the target bands since September 2012. A CPI rise by...

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