Discuss the domestic and global uncertainties to Australia’s economic outlook in 2019

Discuss the domestic and global uncertainties to Australia’s economic outlook in 2019

Australia’s economic outlook in both perspectives shows stability; however, some risks require intervention to streamline fiscal performance.  The domestic conditions have been relatively softer than anticipated as at November statement hence the need to revise the projected GDP lower. The global environment on the other end is characterized by a moderation in the growth of the major partners primarily due to the slowed expansion among the members of its trading community. Therefore, for ideal decision making regarding domestic and global economic dynamics, it is essential to consider the effect on the country’s economy.

Over the past the three months of the year 2019, there has been an increase in Australia’s downward risks regarding its global outlook. The current trade tensions progressively create economic uncertainty. For instance, in China, it has added to a reasonable likelihood that existed before concerning how the need for the authorities to establish an equilibrium on supporting growth while controlling financial risks. The other significant factor influencing the balance between risks facing the international growth outlook is the fact that monetary conditions are under certain constraints. It is also evident that the growth has reached its peak with a projection of 3.7% last year, which is marginally lower than the pre-crisis norms thus implying intensified downward side uncertainties. Besides, the attained growth has proved to be less broad-based with the divergence of the prospects across the leading economies, particularly among the emerging markets. Furthermore, despite the reforms in the banking system, there has been a shift in uncertainties to relatively less restricted banking institutions which means an impending financial crisis. There is also the risk of stringent economic policies due to the lack of a progressive normalization of the financial regulations that can ensure sustainable and inclusive growth.

On the other hand, there are several domestic risks for the inflation and growth outlook since the local financial conditions are the key indicators of performance to this effect. The domestic outlook uncertainty concerning consumption growth is fundamental in assessing the potential economic risks. The recent developments in the housing market sector have caused an increase in the possibility of Australian consumers getting affected by low household net worth; however, the aspect of disposable income remains to be a primary uncertainty factor. The fact that the declining housing business activities are also posing risks for the other sectors of the economy. Additionally, the conditions in the labor market over the previous year suggesting that economic practices have shown financial resilience and strength compared to the data depicted by the GDP. The other fundamental uncertainty is concerning the forecasted decline in the unemployment rate within respect to how quickly it would occur as well as the injection into wage dynamics hence inflation. For the near term case, the economic outlook regarding inflation is also dependent on the degree of changes in the administered prices and utilities continue lowering downward pressure to this effect.

Discuss the trends in the primary sources of Australia’s growth in 2018-19.

First and foremost, the growth in domestic GDP witnessed since last year to the quarter of September indicated relative weakness; thus implying the slow increase in household income reflected in consumption levels. The current GDP indicators point to increase in the conditions beginning the end of 2018 to date with a rise in the possible output growth. However, the accommodative fiscal policy, as well as tighter conditions in the labor market, will likely support the current growth concerning household income against consumption. Secondly, Consumer growth has also been showing the tendency of low growth in most fiscal quarters of the recent years primarily due to lower expenditure on insurance and finance services as well as other products in the market. The aspect of consumption is anticipated to depict a gradual increase to approximately 2.75% instead of 3% that which has been the forecasted change in medium-term data. Recently, there has also been a decline in the housing market and prices practices will influence the consumption of the country significantly. Another important source of economic growth is the housing investment industry which is perceived to be at its peak and show the possibility of declining in the future. Based on the reports from developers and construction firms enjoined in the Bank’s liaison initiative, the construction of high-density buildings have been on a lower trend, and the decrease is expected to continue in the coming quarters.

Besides dwelling development, the aspect of business investment is also projected to support Australia’s growth. It is evident that the non-residential construction in the subsequent quarters especially on private infrastructure, buildings (especially short-term accommodation and offices) as well as expectations of increased investment on computer software, equipment, and machinery to facilitate non-mining practices. The other factor is the input of public demand as a source of economic growth; it is forecasted that it will offer a progressive impetus to the expansion. Large infrastructure projects including the pipeline characterize public investment while the public consumption growth is supported through implementation of the comprehensive insurance scheme. Since employment continues to increase as well as mining profits the additional revenues can help the public demand though they could get offset by the low stamp duty resulting from enhanced house marketing conditions. Imports and exports are the key pillars of Australia’s economy; they remain unchanged to a more significant extent.

There are expectations that the imports would grow consistent with the expansion experienced in private and public investment. On the other hand, the exports are to decline due to the impact of drought on the agricultural sector and exchange rate depreciation thus less contribution to the country’s GDP growth. The terms of trade are anticipated to be moderate over the projected period of 2018-19 period as the demand for bulk products from China has declined gradually decreased with the entrance of low-cost commodity supply in the market. The other aspect of growth is the unemployment and wages trends whereby the unemployment rate is anticipated to be relatively lower as depicted in the outcomes of the labor market that has improved since December last year with an increase in work-age population growth in living standards. The common outcomes are reflected in the gradual pick-up in the growth of the wages compensating, which leads to inflationary pressures in case of increased development in productivity.


Discuss the reason for low inflation outcomes and a declining unemployment rate in Australia between 2015 and 2018

The inflation results were relatively lower as forecasted at the start of 2018 and are expected to rise by 2% by the close of 2019; however, it is this regarded marginally low. There is a need to understand the impact of the unemployment rate as well as output level in the country’s economy on inflation while posing challenges to policymakers in stabilizing incomes and labor market dynamics. The policymakers and the public are in favor of low unemployment as well as low inflation; however not at the expense of declining price levels. The framework adopted by Australia as the monetary policy is an inflation-targeting approach that has proved to possess resilience in the face of cognitive changes witnessed in the macroeconomic context. The underlying principles in the execution of the regime that has been enhanced since 2015 is the fiscal goals outlined by the Reserve Bank of Australia, they include currency stability, full employment maintenance, and economic prosperity alongside Australians’ welfare. On the other hand, the economic prosperity witnessed with the development of legislation through policies that govern the human resource welfare practices has encouraged the process of capacity building in the growth of the labor market.

First and foremost, the stability of the Australian currency goal depicting the legislation fact was set when the norm was the use of fixed foreign exchange rates. Preservation of currency’s purchasing power as interpreted, which is consistent with ensuring there is stable and low inflation. The inflation-targeting paradigm has both real and nominal objectives as depicted by the flexibility regarding specifying of inflation targets. Secondly, the concept of employment capacity maintenance calls for sustainability in the economy path adopted by the country. Thus the economic growth trajectory is of great significance as well as the achievement of financial stability and low inflation. For demand shocks there lacks substantive conflict between the nominal and real goals since the monetary response are efficiently similar. Concerning the supply dynamics, the fiscal actions to attain the two objectives could contradict the medium and short term inflation targets that permit for the significant weight being placed on stabilization of output as well as progressive return on the target’s inflation rates.

In conclusion, the declining inflation rates are attributed to the favorable economic conditions as reflected in the lower fuel prices relative to the previous and the forecasted data. The downward revision of the inflation rates within the period of 2015 to 2018 shows consistency with the reduced GDP growth profile. The other factor that is incorporated in the past flagged downside threat to utilities and administered price inflation in the fiscal quarter. It is also evident that the depreciation reflected in the exchange rates also offer specific offsetting effects. Regarding the constituents of increase; the policymakers propose that the variability aspect in prescribed prices and utilities may be lower. Generally, then there is a shift in the comparative costs of the non-discretionary commodities despite the lack of precise understanding of the household response depending on the population growth and changes in retail prices and rent thus lowing living standards pressure.