Australian Current Economic Situation

Australian Current Economic Situation The current Australian economy is performing significantly well and the future prospects looks positive, given the unfavourable global environment. Australia continues to be a world leader in the global recovery, with lower unemployment, lower debt and stronger growth than other countries. Australia’s economy is expected to grow by 3. 25 percent in late 2010 and 3. 75 percent in 2011 (Table 1) (RBA, 2010). This follows a further growth in employment with jobs increasing by 353,200 over the past year (Wayne Swan, 2010).However due to global uncertainty, consumer confidence and the increased financial market volatility could start to impact on the growth of Australia. Table 1: Output Growth and Inflation Forecasts Per cent, over year to quarter shown | Dec2009| June2010| Dec2010| June2011| Dec2011| June2012| Dec2012| GDP growth| 2. 7| 2? | 3? | 3? | 3? | 3? | 4| Non-farm GDP growth| 2. 5| 2? | 3? | 3? | 3? | 3? | 4| CPI inflation| 2. 1| 3? | 3? | 3| 2? | 3| 3| Underlying inflation| 3? | 2? | 2? | 2? | 2? | 3| 3|Source: RBA, 2010 The early stages of the economic recovery shows the pace of growth remains uneven with some advanced economies still fragile, with concerns with US growth and European debt , while Asia is rapidly growing with growth forecasts for China from 10. 0 to 10. 5 percent in 2010 (Wayne Swan, 2010). Due to this growth and support of Asia, public investment and exports will be the key growth engines for Australia in 2011 and 2012, along with the housing construction boom (Rowan Callick, 2010).This will follow an increase in GDP and will continue to strengthen with the help of the monetary and fiscal stimulus by increasing consumer confidence through supporting the economy, which in turn will increase spending in households. The strong recovery in the Asian region has helped Australia emerge from the global downturn and has dramatically increased Australia's main commodities prices in iron ore and coal a nd will continue to increase over the next decade.The Australian Bureau of Statistics displays a 23 percent rise in the value of iron and copper ore exports and a 15 percent increase for coal, which is mainly due to the increasing volume (The China Post, 2010). This has doubled the forecasts to post a record monthly trade surplus of 3. 54 billion dollars in June 2010 (AFP, 2010). Terms of trade are forecasted to increase further while there will be a medium term decline, as supply expansions come online and increasing prices of steel dampen end-user demands (Graph 1)(RBA, 2010). Graph 1: Terms of tradeSource: RBA, 2010 Due to the higher terms of trade, higher income will be evident and therefore nominal GDP is forecasted to grow by close to 10 per cent over 2010 (RBA, 2010). The high level of commodity prices and the terms of trade are contributing to a strong outlook for investment in the mining sector, with high demands from China. Although the introduction of mining tax threatens investment’s and future exploration in Australia (Philip Kirchlechner, 2010). The Reserve Bank of Australia left its interest rate unchanged at 4. percent on the third of august 2010, as the headline inflation rate came in at 3. 1 percent, while the underlying inflation rate fell to 2. 7 percent. (David Olsen, 2010) This is within the RBAs target range, meaning it rules out an interest rate increase. Headline and underlying inflation rates are forecasted to be 2. 75 percent by Dec 2011 and to reach 3 percent by June 2012. (Table 1) (RBA, 2010). With jobs increasing over the past year more consumers are working, meaning job security is much stronger, as the unemployment rate has declined and is expected to fall further in the year ahead.Consumer attitudes have improved in the past month, which may have been impacted by the interest rate staying put, but there are still not enough signs that consumers want to open their wallets more widely and start spending more. This could a lso be impacted by the doubt of higher interest rates, as there are concerns about the health and uncertainty of the global economy and increasing utility charges and council rates are establishing more conservative spending and borrowing approaches (Craig James, 2010).Australia's unemployment rate in July 2010 was 5. 3 percent and is reported by National Australia Bank chief economist Allan Oster to further fall to 4. 5 percent over the course of the next 12 months (Graph 2) (Lexi Metherell, 2010). Furthermore Australia unemployment rate is lower than other major countries in the world with the United States having an unemployment rate of 9. 5 percent in July 2010 (Swan w. and Tanner L, 2010). Graph 2: Unemployment rate Source: Australian Bureau of Statistics, 2010References * AFP, 2010. Commodities drive record Australia trade surplus. [Online] Available at:<http://www. google. com/hostednews/afp/article/ALeqM5hUrzVBXJkBd80gIbVHZbWlsK-Tmw> [Accessed 14 August 2010]. * Austra lian Bureau of Statistics, 2010. Labour Force, Australia. [Online] Available at:<http://www. abs. gov. au/ausstats/[email  protected] nsf/mf/6202. 0> [Accessed 16 August 2010]. * Craig James, 2010. Weakest spending since global financial crisis. [Online] Available at: <http://www. switzer. com. u/business-news/news-stories/weakest-spending-since-global-financial-crisis/> [Accessed 16 August 2010]. * David Olsen, 2010. RBA rate rise ruled out as inflation fall. [Online] Available at: <http://www. dynamicbusiness. com. au/articles/articles-finance-cash-flow/rba-rate-rise-abs-june-cpi-inflation-data-1849. html> [Accessed 15 August 2010]. * Lexi Metherell, 2010. Unemployment tipped to stay steady. [Online] Available at: <http://www. abc. net. au/news/stories/2010/08/12/2980536. htm> [Accessed 16 August 2010]. * RBA, 2010, Economic Outlook. Online) Available at: <http://www. rba. gov. au/publications/smp/2010/may/pdf/eco-outlook. pdf> [Accessed 14 August 2 010]. * Rowan Callick, 2010. Asian boom will support our long-term picture. [Online] Available at:< http://www. theaustralian. com. au/business/asian-boom-will-support-our-long-term-picture/story-e6frg8zx-1225905071813> [Accessed 14 August 2010]. * Swan w. and Tanner L. , (2010), Economics Statement, July, 2010, Canberra: Department of Treasury, July, 2010. * The China Post, 2010. (Online)