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Australian Economy - Essay Example

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Australia has managed to deal with the global financial crisis with firmness and resolve. The impacts of the global financial crisis have impinged Australia less than other countries in the developed world. Wayne Swan is of the opinion that the Australian economy is in a strong position and warrants a positive economic outlook despite uncertainty in global economic circles (Australian Government, 2010)…
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Australian Economy
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Download file to see previous pages Figure 1 - Historical real GDP growth in Australia's economy The Australian economy is expected to see a rise of between 3.75% and 4% in the GDP for the 2011-12 fiscal year. However certain estimates see this prediction as too high given the current global economic climate (Reserve Bank of Australia, 2010; Brinsden, 2010). The figure below speaks volumes of the success of the Australian government and the Australian Reserve Bank in keeping the Australian economy afloat (Australian Government, 2010; Reserve Bank of Australia, 2010; Bureau of Economic Analysis, 2010). Figure 2 - Comparison of international GDP growth rates The GDP of any nation is composed of the consumption (C), the investment (I), the net governmental fiscal spending (G) and the net exports (X – Q) which can be expressed mathematically as: Australia’s response to these components can be used to better delineate the response of the Australian government and the Australian Reserve Bank to deal with the challenges in the wake of the global financial crisis. Consumption can be used as a major indicator of the economic situation. Australia saw an increase in retail spending of around 0.8% by volume between June 2009 and 2010 which indicates greater consumer confidence (The Australian Bureau of Statistics, 2010). However there is little denying that the global financial crisis made Australian consumers all the more conservative (Gruen, 2010) as the household savings rate went up by 1.3% by May 2010 (Reserve Bank of Australia, 2010). Given that consumption growth alone is responsible for 1.5% of the growth of the Australian GDP, it serves as an important sector. The GDP also witnessed a boost in investment especially in the mining sector although the government’s new tax on mining was expected to prohibit further growth. The mining industry witnessed a growth in investment of 29% between June 2009 and 2010 which was around 50% more than expected (Pascoe, 2010). As an initial response to the global financial crisis the government spending shot up dramatically but this was slowed down fearing: overstimulation of the economy; crowding out of private investment; placing a large debt burden. The GDP was positively supported by the net exports as the current account deficit first fell and then went into a positive trade surplus. The increase in net exports can be seen to result from increased demand for Australian minerals in the South East Asian market. Moreover contribution from net exports is expected to rise in 2011 as new capital investment is lowered into mineral operations that will remove bottle necks that affect production capacity (Stutchbury, 2010). The policies and approaches adopted by the Australian government since 2008 have been directed at handling the impacts of the global financial crisis. Macroeconomic policies have been specifically designed and geared to minimise damage from the global financial crisis. Moreover another chief aim of these policies remains the provision of adequate exit strategies that would be implemented once economic stability is seen on the horizon. The current fiscal stance of the Australian government is more towards contraction as the budget deficit for 2010-11 was some 40.8 ...Download file to see next pages Read More
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