Key Economic Variables in Australian Economy

Key Economic Variables in Australian Economy
Key Economic Variables in Australian Economy

Key Economic Variables in Australian Economy

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Key Economic Variables in Australian Economy

1.0 Executive Summary

This paper forecasts the future of the Australian economy in the next six months by considering the key economic variables. The paper considers the key variables of this economy such as the consumption and investment and further it employs the Keynesian model to extrapolate the current trends into the next six months. The model has also been used to forecast the current state of the economy and the application of cash rate based on its principles. In considering the future, the paper has inferred from the current trends in consumption and investments. The main indicators of consumption that are relied by this paper are disposable income, real interest rates Business taxes and Savings. The paper concludes that in the next six months, Australia economy will attain a slow growth with adoption of practices such as the changes in the reduction of cash rate.

2.0 Introduction

Economic forecasting assists in interpreting the economic developments and is a necessary tool in determining the factors that are likely to affect the economic activity and the consequent implications. This involves the critical assessment of the interrelationship among major macroeconomic variables and how they could be impacted by changes in economic indicators. Critical analysis of the key economic variables and indicators enables development of possible future outlook of the economy. Various models have consequently been developed to assist economists to predict future changes in the economic trends. This paper will outline the current state of the Australian economy and explain the major economic variables that act as key drivers to economy. Further, the paper will provide the possible future movement of the Australian economy through identifying how the economic indicators drive the economy. The report will be keen to apply the Keynesian model to show the macroeconomic environment of Australian economy as well as forecasting economic performance in the next six months and finally the model will be used to predict the possible cash rate change.

3.0 Current State of Australia Economy

Currently, the Australian economy is growing at the rate of 1.8% which is relatively lower than the expected rate of 2.7%. The economy experienced a 0.5% decline in the third quarter of 2016 (Focus Economics, 2016). The economy had experienced weak quarterly growth in the previous two quarters. The economic decline was as a result of GDP contraction that was driven by fall in public investments (Rida, 2016). The inflation in the economy stands at 1.3% which is a 0.3% increase from the previous three quarters. This has been caused by rise in food prices which has been attributed to adverse weather condition such as floods in the areas supplying the food products. Currently, the Australian cash rate stands at 1.5%. Economic experts estimate that the cash rate may reduce to 1.4% in six months. The current rate of unemployment stands at 5.6%. In comparison to other rates in the last few months, this rate is a decrease from the previous rate in the past three months, which stood at about 5.7% (Trading Economics a, 2016).

Key Economic Variables in Australian Economy

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