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Overview

Australia exhibited a superior performance relative to other advanced nations, as evidenced by its 3.7% growth rate in the year 2022. It is widely believed that developed nations exhibit a growth rate of 2.7%. It is highly probable that the success will continue to persist. According to the International Monetary Fund, it is projected that Australia's economy will experience a growth rate of 1.6% in the year 2023. This growth rate surpasses the average growth rate observed among advanced countries, which stands at 1.3% (Shooshtarian et al. 2023).

The Key Economic Variables

In December 2022, private consumption accounted for 49.9% of Australia's nominal Gross Domestic Product or GDP. The percentage decreased from 50.3% in the preceding quarter. The financial sector encompasses a substantial pool of pension assets, ranking as the fifth largest globally with a total value of US$7.3 trillion (Shooshtarian et al. 2023). Private expenditure experienced a modest increase of 0.2% during the initial quarter, following a growth of 0.3% in the preceding quarter. This phenomenon can be attributed to the persistent impact of high inflation and more stringent credit conditions on actual incomes. In contrast, fixed investment experienced a growth rate of 1.8% during the first quarter, following a contraction of 1.0% in the preceding quarter. The observed increase in economic activity can be attributed to a shift in investment patterns, encompassing both private and state sectors. Notably, non-mining investment has emerged as the primary driving force behind this upward trajectory. During the initial quarter, there was a decrease of 0.1% in government expenditure (Lawrence, 2023).

AD/AS Model

The AD/AS model of Australian Economy is as follows:-

It is projected that Australian consumers will suffer significant financial strain in 2023 as a result of the rising cost of living and the rising cost of mortgages, which will lead to a decrease in the rise of expenditure. It is anticipated that a more rigorous monetary policy will result in a reduction in investment, which may have unfavourable repercussions for the labour market and the unemployment rate. On the other hand, it is projected that there will be an increase in pay growth in 2023, and the primary reason for this prediction is that the current conditions of a tight job market will continue for the foreseeable future. On the other hand, it is forecasted that there will be a continuation of a downward trend in real wage growth for a considerable amount of time (Maritz et al. 2020).

Key Economic Indicators

It is not an easy assignment to forecast how the economy of Australia will develop between now and the year 2023. The trajectory of inflation suggests that it will begin to slow down in the coming year; however, it is highly unlikely that it will fall within the range of 2% to 3% that the Reserve Bank of Australia (RBA) has targeted for it to attain by the year 2023. It is projected that the continuing trend of monetary policy tightening will continue, despite the fact that there is a possibility that there will be a pause towards the end of 2022. Households' principal concerns relate to the efficiency of monetary policy in taming inflation and the potential response of consumers to a much more severe monetary policy. Additionally, households are concerned about the potential response of consumers to a significantly more stringent monetary policy

Conclusion

It is anticipated that the expansion of the economy will decelerate, with a projected decrease from 3.6% in 2022 to 1.6% in 2023. With a projected rate of 2.1%, the projected deceleration of consumption growth is anticipated to be significant. In the event that inflation does not decline in accordance with projections, there is the possibility of an overly restrictive monetary policy. It is anticipated that the previously mentioned issue will have a significant impact on the financial burdens of households, resulting in diminished consumer confidence and a lower propensity to engage in purchasing activities compared to initial projections. Given that household spending accounts for more than half of total economic activity, a decline of this magnitude has the potential to trigger a recession. Therefore, prudence is required when implementing future measures to tighten monetary policy.

References

Maritz, A., Perenyi, A., De Waal, G., & Buck, C. (2020). Entrepreneurship as the unsung hero during the current COVID-19 economic crisis: Australian perspectives. Sustainability12(11), 4612.

Rossell, S. L., Neill, E., Phillipou, A., Tan, E. J., Toh, W. L., Van Rheenen, T. E., & Meyer, D. (2021). An overview of current mental health in the general population of Australia during the COVID-19 pandemic: Results from the COLLATE project. Psychiatry research296, 113660.

Shooshtarian, S., Hosseini, M. R., Kocaturk, T., Arnel, T., & T. Garofano, N. (2023). Circular economy in the Australian AEC industry: investigation of barriers and enablers. Building Research & Information51(1), 56-68.

Lawrence, G. (2023). Agricultural restructuring and rural social change in Australia.In Rural Restructuring (pp. 101-128).Routledge.

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