Currently, Economy of Australia is under crucial phase, facing issues from three directions,

which severely impacting commodity prices mainly oil prices, steep decline in investments and
tight monetary situations and the economic condition of Australia is widely spread and economy
is moreover moving towards slump. Currently, fiscal conditions are out of control and housing
investments are higher and other than that, mining sector requires support to set off its slump
positions. Gross Domestic Product (GDP) in 2014 was noticed 2.3% and it has been noticed all
time its low in first quarter of 2015 at approximately 0.5%, which shows that, economy of any
developed nation can grow at such poor stage. Global market has already taken smoke of weaker
economic situation in Australia and at the same moment, Reserve Bank is not interfering much to
curb the economic situation of country. The overall scenario of Australian economy is here
below:
Weak GDP results into Unemployment
Australias economic situation is deteriorating since last six quarters where the economy grew
merely by 0.5%, sometimes even lesser. Occasionally low growth quarters could be digested but,
the long term situation results into severe impact on economy. Australia is dealing with
unemployment situation and it requires minimum 3% of GDP for every quarter to accommodate
at least one earning member to each family but, 0.5% of economic growth is further adding 2%
increment in unemployment scenario.
Gross Domestic Product (Sep 2013 Dec 2014)

*Source The Guardian (2015), retrieved from http://www.theguardian.com/business/grogonomics/2015/mar/05/limping-gdp-growth-six-thingsabout-the-state-of-australias-economy

As per GDP calculated at December 2014, the GDP growth rate was approximately 2.5% and for
the first two quarters on 2014 showed the growth of merely 0.87% resulting into annual growth
rate of 1.7%.
Nominal Gross Domestic Product (GDP) which is known for its taxation revenue resulted into
1.6% growth rate during 2014 fiscal outlook during mid-year was even lower by 1.5% and the
growth noted was just by 0.8%. Such decline in nominal gross domestic product rate resulted
into decline in revenue in national budget which is to be announced in May 2015.
Decline in Export Prices, But Growth in Export Volume
Prices of commodity is getting downwards but still the export zone shows positive result with
growing exports. The growth rate of Export in December 2014 was 7.2% as per seasonally
adjustment and 5.3% growth as per trend basis.
But the unfortunate part of trade is that, on measuring of prices of exports from the country and
cost spend on imports then the results shows the revenue fall by 10% since last period, but, this
decline in revenue is has not impacted the economy as poorly as what has impacted because of
fall in prices of oil, which is generally been imported. The net contribution to Gross Domestic
Product by exports was approximately 1.4%, which was lower than December 2014 but still the
export trend is showing positive growth but, this growth is not enough to save the economy from
recession phase. The economy could be positive in case of oil prices have shown some positive
effects.
Growing Aggregate Expenditure
Though, economy is falling downwards but, still the Australian population is spending with their
open hearts, which results in impressive aggregate expenditure of the nation. The consumer
confidence is low and wage rates are also not effective, the unemployment rate of Australia is
rising at every quarter but, still the household expenditure data shows the increase in 2.7%
during the period which is higher than past period. In fact, there is positive contribution of
household expenditure in Gross Domestic Product (GDP) formation rather than contribution of
net exports to the GDP.
Annual Contribution to GDP

*Source The Guardian (2015), retrieved from http://www.theguardian.com/business/grogonomics/2015/mar/05/limping-gdp-growth-six-thingsabout-the-state-of-australias-economy

But, the major question arises that, where the Australians are actually spending their entire
money, the overall growth rate shows increase in consumption by 2.7% in different expenditure
zones such as spending on rents, recreational expenditure made in hotels, restaurants and cafes
etc. The result shows that, the Australians are more enjoyment freak, whose routine activities
shows the spending on movies and concerts, which is followed by dining at hotels or either night
stay at hotel and rent for such recreational activities draws out the entire the money from the
pocket of any normal household. Though, Australians are not maniac towards smoking,
cigarettes

and

tobacco,

in

fact,

the

reduced approximately by 9%, which is

1983, which was considered as all-time lowest.
economy
Aggregate
Expenditure

shows

communication

consumption of cigarettes and tobacco

AE

the

equivalent to fall in smoking rate of

The overall trend of Australian

AE
2

system

AE
1

major

expenditure

is

on

which is higher by 7.6% growth

and there is not much growth in any other items, goods and services. The

overall household spending of Australia contribute only 0.2% to Gross Domestic Product (GDP),
which is not sufficient enough to revive the economy but still hoping for positive change.
Aggregate

Real National Income / Real GDP

Expenditure Model

The above mentioned figure shows that, the previous year aggregate expenditure value is AE1
and the AE2 line shows increase in aggregate expenditure for the period of year 2015, which
shows that, it is rising.
Stagnancy in Mining Industry
Last year December 2014 shows that, the mining industry of Australia cold not show any
positive sign in growth rate and contribution in Gross Domestic Product (GDP) but, since
January 2015, the mining industry is showing some contribution in economic growth of nation.
The analysis of December 2014 shows that, the major downfall happened in coal mining, oil and
gas extraction sector, i.e. fuel and energy sector. In fact, mining of metal specifically, Iron ore
been slumped but soon it recovered by 1.7% of growth, and the overall analysis of mining sector
shows that, the mining sector could be revived and show positive contribution only in case the
export could be increased in spite of production and investment matter.
Increase in Housing Sector, Decline in Investments
Australias major cities are showing housing sector boom and the investment in dwelling of
housing units have been increased by more than 5% though it is lower than the past periods
growth rate, i.e. approximately 8%. Though, the development of new housing units are positive
for economic growth but, as the huge investment of amount stuck up the flow of money in the
economy and the worst part of the housing sector construction is that, 60% of the finance has
been invested in dwelling units and rest 40% of the finance stuck up in non - dwelling finances.
The investment made in housing construction unit contributes 0.3 percentage point to Gross
Domestic Product (GDP) of the country.
Impact of Western Australia and Queens Land
Western Australia and Queens Land have always been known for its mining resources and these
two places have always been known for largest contributors in Gross Domestic Product (GDP)
during growing phase but, Western Australia and Queens Land started giving negative
contribution to the GDP of nation as the mining industry have been either shut down or either
giving negative impact on economic condition of country. The overall economic condition of
country has been dragged down. Though, these two states are showing some impact in terms of
export scenario in February 2015 and fingers are still crossed for future growth.

Impact of Labor Cost on Economy

Since January 2015, the working hours of labor fell

S1

down, which states that, Gross

Domestic Product (GDP) per hours basis grew by

1.7%
S

growth for last five years were 1.6%. The cost of labor

and

the

average

wages have been increased

and most of the labor intensive units are facing lower

export trend as the labor

cost are not competitive enough to match the product prices offered by China and few other
nations. Though, the downfall in nominal labor cost resulted

into weaker economic

D

conditions of country.
D1

Price

Aggregate Demand /

Declining Output
Output

Aggregate Supply

Model

Current situation of Australian economy shows that, the nation is in situation to supply more but
there is no demand in country which resulted into dis - balanced Aggregate demand and
Aggregate Supply model. As per Stevens (2015), the prices of oil and other fuel materials have
been fallen significantly which shows that, there is rapid supply in market but below average
demand.
Role of C (Consumption), I (Investments) and NX (Net Export)
C (Consumption Function) The overall consumption function states that, there is vast variety
in consumption process of Australian people. The average household is making consumption
expenditure as per below mentioned schedule:

Items
Consumption Situation
Recreational Expenditure
Very Positive
Rentals
Very Positive
Health & Insurance Services
Positive
Communication Services
Positive
Food, Clothing, Education
Average
Alcoholic and Tobacco etc.
Negative
Vehicle
Highly Negative
Oil, Coal, Other Fuel etc.
Highly Negative
Overall consumption function is negative as the major products such as, Oil, Coal and Fuel etc.
are highly supplied but their demands are lesser. In fact, the other household consumption
materials are unable to support the economy in terms of revision.
I (Investments) The overall investment function is lower in Australian economy. The banking
sectors interest rates and other financial decisions are tight and not showing any positive format
in revival of economy. In fact, the investments made in mining sector as well as non mining
sector are low but, the investments made in housing construction sector is on boom and still
moving towards positive.
NX (Net Exports) Overall Net Exports is positive in Australia, but, it is still not able make
effective contribution in Gross Domestic Product (GDP) as China is hampering the overall
export value of nation and also the Australian dollar is diminished and not providing value to
GDP of nation.
FINAL DECISION
The overall analysis of economic situation prevailing in Australia is tensed and negative towards
any new business proposals. The current situation is not showing any chance of economic revival
and the first quarter 2015 is in fact, one of the lowest performing quarter till now. The economic
situation will remain critical for next two quarters as well and it may show some sign of revival,
in case, Reserve Bank take some tight steps in terms of fiscal policy from the beginning of
second quarter of 2015. The organization may start any business, in case, the business deals in
some recreational and hotel business. Mining businesses must not be taken forwards in current
economic conditions.