2.7 - Factors affecting recent trends in Australia’s level of economic activity to 2013

Our activity has been quite cyclical, goes up and down.
Overall Australia’s annual average growth in GDP over this period was around 3% a year which is in the governments range of 3-3.5%
Economic activity has grown 2.5% from 2008-9 to 2012-13
The recent influence of aggregate demand side factors to 2013?
1. Economic activity is changed with different demand side conditions which affect spending.
2. There were three phases in the business cycle over the last few years that have really affected aggregate demand. They are mainly because of the GFC.
  1. 1. Late 2008-2009 Aus economic activity slowed dramatically due to the GFC. International recession occurred within America which weakened our demand side conditions resulting in slow spending on locally made goods.
  2. 2. Late 2009-10 and 2011-12, there was recovery thanks to stronger demand side conditions both here and abroad
  3. 3. During 2012-13 another slow down hit with mostly weaker demand side conditions being present.
Investigating the specific demand side conditions which caused changes in the level of economic activity during recent years.
1. 1. Changes in consumer confidence and business confidence
  1. GFC lead to dramatic decrease in confidence as well as a rise in household savings
  2. Levels of private consumption and investment spending decreased, slowing down AD
  3. 2008-10-11 we saw confidence soar which boosted AD and a rise in economic activity.
2. 2. Changes in disposable income
  1. GFC saw growth slow down
  2. weakening of disposable income meant a weakening of private consumption and AD. Activity here slumped.
  3. In contrast, 10-11-12 saw more purchasing power come into play lifting economic activity.
3. 3. Changes in credit growth
  1. Depression of household consumption & business investment spending occurred in 08-09-10-11.
    1. AD and economic activity was low
  2. Accelerated in 11-12 which lifted AD and boosted the level of economic activity
4. 4. Changes in overseas economic activity and the terms of trade
  1. effects the value of Australia’s exports which in turn affects AD and economic activity
  2. GFC weakened confidence, spending and growth among our overseas trading partners
  3. slowed down the demand for our exports and commodity prices weakened
    1. Both of these weakened AD and slowed economic activity
  4. slowdown in Chine recently also effects us with a fall in commodity prices as well as our trade index. This means there was more imports than exports
  5. partial recovery of some countries overseas helps bolster our salads in 2011-12 with strong commodity prices, strengthening out trade and lifting overall spending on Australian exports.
5. 5. Changes in federal government policies that manage the level of aggregate demand.
  1. RBA tries to manage the levels of AD by lowering and increasing interest rates
  2. During the GFC the level of economic activity plunged and it seemed we were going into recession.
    1. RBA decreases interest rates to allow people to have more to spend so we don't go into recession. They also went to a budget defect so that the government had money to give out for people to spend.
  3. 2009-10 the policy was removed to slow down the rate of AD
  4. Slow activity in 2012-13 caused the RBA to again reduce interest rates and switch to a budget surplus
6. 6. Changes in the rate of population growth
  1. Within a year of the GFC, Aus population dropped by 20% because people couldn't afford to have a family
  2. depressed household consumption and AD which lowered economic activity.

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2.7 - Factors affecting recent trends in Australia’s level of economic activity to 2013

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