Australian Economy
...rices contributed to increased epxenditure on cars. Economists remain optimistic that growth will pick up in 2003-04 to 3.25%, with a farm sector recovery and an easing on the global drag of uncertainty. Business Investment is a main driver in economic growth. Investment refers to the purchase of new capital for the future. Economies must face the trade off whether to consume now or invest for the future. Investment is a way that the Australian government can encourage growth and in the long term, raise the economy’s standard of living. The level of business investment within Australia has a direct impact on Australia’s unemployment rate. Greater business investment will provide funding and capital to enable business expansion. This will result in greater demand for labour, reducing the unemployment rate. Despite the mild economic environment, new business investments are still expected to grow stronger in 2003 than in 2002. For business investment to expand beyond 2004, there needs to be an increase in spending by the small to medium business sector. The Current Account Deficit (CAD) is a widely used indicator of Australia’s economic performance. It comprises the trade balance plus net income paid to foreigners, and is usually quoted as a percentage of GDP. In 2003 Australia has experienced negative export growth and rising imports, propelling the current account deficit to $37bn (5 % of GDP) in the year to March 2003, its highest dollar value on record. Between mid 2001 and 2002, export volumes had fallen by about 2.5%. This is due to the continued weakness in the global economy, political uncertainty and the rising Australia dollar which has made exports less competitive in foreign markets. This marginal fall in exports, along with a 13 % rise in import volumes has increased the trade deficit to $15bn over the past year. Opinion is divided over whether Australia’s CAD is sustainable. However the recent increase in foreign debt to $362bn has created an ongoing strain on external accounts, and Australia has become dependent on continuing financial inflows to fund the servicing costs of its high foreign liabilities. Inflation is a sustained rise in the general level of prices in an economy. Australia has maintained low levels of inflation in recent years reflecting increased global competition, reduced union power and use of monetary policy. In 2003, the inflation rate has fallen to 2.7%, its lowest level in four years. This is a direct result of many factors. Firstly, the appreciating dollar reduces the costs of foreign goods and services coming into Australia, resulting in a decline in imported inflation. The decline in fuel prices has also contributed to Australia’s falling inflation rate, which at one stage fell to zero, in the final quarter of the 2002-03 financial year. The drop in the inflation rate, coupled with the risks associatied with the economic weaknesses of Australia’s major trading partners, will likely cause the Reserve Bank to cut...