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MACROECONOMIC PERFORMANCE OF AUSTRALIA: CRITICAL ANALYSIS OF 1990 TO 2015
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Introduction
The Australian economy experienced a severe recession over the last few decades. In the 1990s there was a slow growth in the real GDP which consistently began to show a fall towards the mid-1990s. The rate of unemployment cases was increasing, and the inflation became a significant problem in the economy (Burkhauser, Daly, and Lucking, 2013, pp. 360). Following the severe recession that faced the country, the government did strive to seek measures to solve the problem at hand. Therefore, the state began to recover from the economic rapture in the mid-1990s onwards. Although the process was slow and gradual, a positive result was seen in the improvement of the unemployment cases (Fels, 1995, pp. 32). The economy in the country continued to depict a positive growth up to the mid-2000 and thus recording the longest economic expansion in the Australian economy therein. Besides, the performance in the Australian economy then became almost similar to that of the United States. From the brief explanation, it is notified that there are some economic disruptions experienced in the Australian economy from the years 1990 to 2015. Therefore, the paper aims at critically analyzing the macroeconomic events that occurred in the Australian economy in the stated years. Further, the analysis integrates major economic indicators such as the Gross Domestic Product GDP, the rate of unemployment, interest rates, inflation and exchange rates among others.

The Key Macroeconomic Indicators
Real Gross Domestic Product (GDP) growth
The concept of Gross Domestic Product (GDP) refers to the total production of the residents in any particular company and the addition of the total taxes of the products and the services (Granderson, and Paul, 2001, pp. 202). The gross value of the GDP does not take into account any depreciation charges of the assets therein as well the depletion of any natural resources whatsoever. The real GDP growth accommodates the inflation aspect in realizing to the gross production of a country’s economy. The relevant data that illustrates the real GDP growth rate in the Australian economy for the year 1990-2015 is shown below;
Time Value
1990 3.5 2003 3.1
1991 -0.4 2004 4.1
1992 0.4 2005 3.2
1993 4.1 2006 3
1994 4.1 2007 3.7
1995 3.9 2008 3.7
1996 3.9 2009 1.8
1997 3.9 2010 2
1998 4.4 2011 2.4
1999 5 2012 3.6
2000 3.9 2013 2.6
2001 1.9 2014 2.6
2002 3.9 2015 2.4
From the data above, there was a poor performance of the real GDP growth rate in the year 1991 but later shown a slight improvement at the beginning of 1992. There was a rapid growth in the GDP from 1992 to 2000 which had a constant growth rate (Databank.worldbank.org. 2018). Besides, the highest GDP growth rate in that period was recorded in the year 1999 by a 5% growth rate. Although there was a decline in the growth rate in 2001, the country managed to boost the economic performance and hence an improvement was seen from the year 2002-2008. Since then, the GDP growth performance had been declining from the average rate of 3.5% to 2.4% in 2015.
Interest rate (Cash rate)
The term interest rate or cash rate is a common aspect in Australia which reflects that bank interest rate that the central bank imposes on the funds they lend to commercial banks in the form of overnight loans. The following data illustrates the various annual cash rates in the Australian economy for the year 1990-2015.
Year Cash rate %
2015 2.00 2002 4.75
2014 2.50 2001 4.25
2013 2.50 2000 6.25
2012 3.00 1999 5.00
2011 4.25 1998 4.75
2010 4.75 1997 5.00
2009 3.75 1996 6.00
2008 4.25 1995 7.50
2007 6.75 1993 4.75
2006 6.25 1992 5.75
2005 5.50 1991 8.50
2004 5.25 1990 12.00
2003 5.25
The data above shows a consistent decrease in the cash rates all the way from the year 1990 to 2015. The subsequent decline in the interest rate is as a result of the intervention of the Government of Australia. Ideally, the regulation of the rates of interest was relevant in regulating the level of inflation and the levels of unemployment as well. The decrease in the lending interest rate boosts the investment of commercial banks and thus creating more employment opportunities (Databank.worldbank.org. 2018). Moreover, the government regulation led to increased performance in the economy of Australia as there was a constant regulation in the occurrence of the inflationary economy as well as the subsequent adverse effects it causes to the economy therein.
Relationship between real GDP growth and Interest rate (Cash rate)
There is a positive relationship between the growth in the GDP and the interest rates in any given economy. An increase in the GDP results in a subsequent rise in the interest rates therein (Keller-Krawczyk, 2011, pp. 103). Usually, positive growth in the GDP will lead to an increased demand for money as consumers tend to purchase the products. For this reason, as the demand for money increases, the lenders tend to increase the interest rate i$’ to i$” to meet the increasing demand and thus the demand curve shifts to the right from L (i$, Y$’) to L (i$, Y$”). The following illustration explains the relationship that exists between the interest rates and the real GDP;
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Consequently, an increase in the interest rates leads to the rise in the borrowing costs and limiting the availability of bank loans. As a result, the consumer ends up spending more on the products and services leading to an increase in the gross domestic product. The same case is evident in the Australian economy. The gradual fluctuation of the growth in the real GDP is relative to the changes in the interest rate (Plummer, Walmsley, and Sorensen, 1990, p. 186). Usually, the government integrates the use of the monetary and the fiscal policies to regulate the interest rate in the economy. The process is subject to use of inflationary and deflationary policies. In this case, therefore, the consistent decrease in the interest rates. The reduction in the rate the central bank lends to the commercial leads to a relative decrease in the rates the commercial banks impose on the final consumers and business that seek loans
Rate of Unemployment
It refers to the number of persons willing to provide labor but lacks the opportunity to secure a job. The table below shows the cases of unemployment rates in the Australian economy from 1990 to 2015 (Databank.worldbank.org. 2018).
Time Value
1990 .. 2003 3.3
1991 .. 2004 3.1
1992 .. 2005 3
1993 .. 2006 2.5
1994 .. 2007 2.7
1995 2.9 2008 2.5
1996 .. 2009 3.3
1997 4.6 2010 3
1998 3.8 2011 3.4
1999 .. 2012 3.4
2000 3.4 2013 3.3
2001 3.3 2014 ..
2002 3.4 2015 ..
The unemployment rate in Australia appears to be at an average of 3.3%. However, the government is striving to maintain the unemployment cases minimum as possible. The rates keep changing across the years with no reflection of a significant change whatsoever.
Relationship between real GDP growth and Unemployment rate
A well growing economic has deficient cases of unemployment. In this case, it means that for an economy to reduce unemployment and utilize the available labor force, the economy has to proliferate and beyond the potential economic growth of the country therein. Moreover, as per the Okun’s law, an increase in one unit of employment is relative to a decrease in two units of the GDP growth (McFarlane, and Windschuttle, 2010 pp. 123). However, the relation varies with countries and the period considered. The case scenario is evident in the Australian economy. There is almost a constant percentage of the rate of unemployment in between the year 1998 to 2013. In the same period, the Australian economy, in particular, the GDP was experiencing very slow growth. Therefore, a slight increase in the economy at that period would not cause a significant change in the levels of unemployment.
Rate of Inflation
The concept of inflation refers to the consistent increase in the price of goods and services in a given economy. Subsequently, the rate of inflation thus involves the extent to which the purchasing power of currency decreases. During the economic recession in Australia in early 1990, there was a relative increase in inflation up to 7% in 1990 (Databank.worldbank.org. 2018). Nevertheless, the government intervened to control the deflationary gap that was building. Although the recovery process has not been smooth, there is remarkable progress in the regulation of inflation in the country. There is a considerable decrease in the inflation rate from 7% in 1990 to 1.5% in 2015. The annual rates are shown below;
Time Value
1990 7.272 2003 2.771
1991 3.223 2004 2.344
1992 0.986 2005 2.669
1993 1.813 2006 3.538
1994 1.895 2007 2.332
1995 4.638 2008 4.353
1996 2.612 2009 1.82
1997 0.25 2010 2.845
1998 0.853 2011 3.304
1999 1.465 2012 1.763
2000 4.475 2013 2.45
2001 4.381 2014 2.488
2002 3.003 2015 1.508
Relationship between real GDP growth and inflation rate
Healthy economic growth has low unemployment cases due to the increase in production. Since most individuals are employed, there is an increase the amount of the disposable income and thus translating to a rise in demand for commodities (Wood, Gregory, and Butlin, 1995, pp. 166). The companies hence produce more to meet the increasing demand for goods. As the consumer increase the spending, it leads to an increase in the total GDP in the country. According to the law of demand, as the demand for particular product increases, there is an increase in the prices of the products and thus leading to inflation.
Exchange Rate
In the economic perspective, the concept of exchange rate refers to the value at which a local, national currency is a quote in respect to foreign currencies. Usually, the level of the exchange rate is set by the authorities of the country and abides by the market rates therein. The concept plays a very significant role in the growth of trade and the cash flows in the economy. In the data given below, the Australian economy tends to maintain a persistent exchange for the two decades. However, there is a small increase in the years 2013 to 2015 (Databank.worldbank.org. 2018).
Time Code Value
YR1990 1.281057 YR2003 1.541914
YR1991 1.283756 YR2004 1.359753
YR1992 1.361648 YR2005 1.309473
YR1993 1.47056 YR2006 1.327973
YR1994 1.367751 YR2007 1.195073
YR1995 1.349033 YR2008 1.192178
YR1996 1.277863 YR2009 1.282189
YR1997 1.34738 YR2010 1.090159
YR1998 1.591828 YR2011 0.969463
YR1999 1.54995 YR2012 0.965801
YR2000 1.724827 YR2013 1.035843
YR2001 1.933443 YR2014 1.109363
YR2002 1.840563 YR2015 1.33109
Relationship between real GDP growth and exchange rate
There is a definite relationship between real GDP growth and exchange rate. An increase in the level of exchange rates leads boosts trade and sequential growth in the economy. From the analysis of the Australian economy, the positive relationship is evident since the consistent and gradual increase in the exchange rates is corresponding to the continuous growth of the GDP over the given years.
Net Exports
The net exports of a country refer to the total value of the exports less the imports. The term export refers to the locally produced that are sold to a foreign market. On the other hand, the imports relate to the goods and services that a country acquires in a foreign nation. The data below shows the annual net exports in the Australian economy for the years 1990 to 2015 (Databank.worldbank.org. 2018);
Time Value
1990 50111728311 2003 94088600035
1991 53635948088 2004 114901826681.727
1992 54572911594 2005 137448890573.078
1993 55290810030 2006 157748983800.885
1994 62036906626 2007 182994104398.621
1995 70182584497 2008 232680429205.088
1996 79842872962 2009 195104905304.235
1997 84393594743 2010 260249450614.58
1998 73133991015 2011 324140478278.654
1999 74820158382 2012 311985984116.933
2000 83989348863 2013 307257830406.135
2001 81575692195 2014 294725278336.059
2002 84497680538 2015 237375980446.337
Relationship between real GDP growth and net exports
The net exports and the GDP have a positive correlation. An increase in net exports indicates that the total exports of the nation are more than the total imports. It thus shows that there is an increase in the consumer spending as theory is an increased demand for the investment in exports. Exports increase the total income of the country’s local production and thus increasing the real GDP value therein. In the Australian economy, there is a consistent growth in the economy due to increase in the net exports.
Impact of monetary policy and fiscal policy on the economy of Australia
Following the economic recession in the early 1990s, the government of Australia introduced measures to regulate the economic performance (Burkhauser, Daly, and Lucking, 2013, pp. 362). The integration of the monetary and fiscal policy was significant in controlling the unemployment rates, inflation, and the interest rates. The use of the expansionary monetary policy led to the decrease in the real interest rates. As the rates decrease, the foreign investment decline due to the low rate of return. The value of the national currency loses value. In order to avoid the loss in the exchange rate of the money, the government also integrated the use of contractionary and the expansionary monetary policies when the need arises to maintain a balance the interest and exchange rates. The policies help in recovering from the economic recession and thus preserve a smooth economic development. The fiscal policy is also essential in regulating the exchange rates and interest rates in the economy. Usually, the fiscal policy is vital in the Australian economy in restructuring the unemployment levels along 1990 to 2015 (Pomfret, 2009, pp. 255-263). Although there is no significant change, the government plays a role in ensuring the rates do not increase and cause an adverse effect on the economy.
Relationship between inflation and unemployment rates
Economically, the concept of inflation and unemployment rate depict an inverse correlation. It means that a decrease in cases of unemployment leads to an increase in inflation rates in the economy. Graphically, the short run Phillips curves gives an illustration of relationship between the above elements as shown below;

The diagram shows the tradeoff between inflation and unemployment. For instance, at point A, the rate of unemployment is 5% whereas the rate of inflation is 2%. A decrease in unemployment from 5% to 3% as shown in point B translates to an increase in inflation from 2% to 6%. A reduction in unemployment levels leads to increase in the consumer disposable income and thus the increase in demand for goods and services (Wheelwright, 1992, pp. 102-104). As per the law of demand, an increase in demand for products leads to an increase in prices. Following the consistent rise in the prices of commodities, thus, the economy suffers inflation.
Conclusion
Following the economic recession in 1991, the economy in Australia is recovering slowly. Currently, the economy is marking uninterrupted economic progress for the last 26 years which is the most prolonged period the country has maintained a smooth economic performance since the severe recession. Although the recovery process has been gradual, the economic performance has been efficient with the future perspective of the economy experiencing an expansion. The central presumption is that the value Australian dollar will rise as the exchange rates increase gradually.

References
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Databank.worldbank.org. (2018). World Development Indicators | DataBank. [online] Available at: http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators [Accessed 19 Jan. 2018].
Fels, A. (1995). Competition Policy and the Changing Australian Economy. Economic Analysis and Policy, 25(1), pp.29-39.
Granderson, G. and Paul, C. (2001). Cost Structure and the Measurement of Economic Performance: Productivity Growth, Utilization, Cost Economies, and Related Performance Indicators. Southern Economic Journal, 68(1), p.202.
Keller-Krawczyk, L. (2011). SOCIO-ECONOMIC POLICY IN AUSTRALIA DURING THE CRISIS YEARS 1984-2004. Economics & Sociology, 4(1), pp.97-114.
McFarlane, B. and Windschuttle, K. (2010). Unemployment: A Social and Political Analysis of the Economic Crisis in Australia. Labour History, (38), p.123.
Plummer, B., Walmsley, D. and Sorensen, A. (1990). Contemporary Australia: Exploration in Economy, Society and Geography. The Geographical Journal, 156(1), p.86.
Pomfret, R. (2009). The Post-2007 Financial Crisis and Policy Challenges facing Australia. Economic Papers: A journal of applied economics and policy, 28(3), pp.255-263.
Wheelwright, T. (1992). Review: Australia in the International Economy in the Twentieth CenturyDysterBarrie and MeredithDavid, Australia In the International Economy In the Twentieth Century, Cambridge University Press, Melbourne, 1990. Reprinted 1991. ISBN 0 521 33689 Pb. pp xvi plus 362, $29.95. Media Information Australia, 65(1), pp.102-104.
Wood, G., Gregory, R. and Butlin, N. (1995). Recovery from the Depression: Australia and the World Economy in the 1990s. The Economic History Review, 43(1), p.166.