If you’re studying HSC Economics, you’re probably on the lookout for recent and relevant examples and case studies for your assignments. With the federal election called recently, the Ukraine-Russia conflict, and the Omicron variant, there’s a lot to unpack in our latest update of what’s been happening with the Australian Economy.
We’ve got you covered as we take a look at how Australia’s economy has fared recently. From overall economic growth and inflation to business conditions and confidence, we’ll be providing a review of the key economic topics you should know about.
Let’s get started!
Overall Economic Growth
Inflation
Consumer and Business Confidence
Wage Growth
Employment
Monetary Policy and Final Thoughts
Overall Economic Growth
The September quarter data reveals that there was a 1.9% decrease in the Gross Domestic Product (GDP) in comparison to the quarter before that. The main driver for this is that the September quarter was impacted by the Delta variant towards the start and also by Omicron later on in the quarter.
While there has been a decrease compared to the previous quarter, the overall economic growth was actually better than predicted. It was anticipated that we would see a 2.7% decline in the September quarter, but in reality we saw a 1.9% decline.
This means that the Australian economy handled impacts and challenges of COVID, especially Omicron, better than predicted. Additionally, when compared to the same period last year, there was a 3.9% increase in GDP, which shows that the momentum is shifting and picking back up.
What does this mean going forward?
Predictions for the March quarter are overall reserved but optimistic. The Reserve Bank of Australia predicts a small decline compared to last year and suggests that the Omicron variant will slow growth in the March quarter, but with vaccines, learning how to deal with COVID and less restrictions, the impact won’t be too bad. They are predicting an overall economic growth of around 4¼% over 2022.
While COVID has impacted economic growth in the September and March quarters, overall predictions expect to see positive growth over the 2022 period.
Inflation
However, a bigger challenge at the moment for not just Australia, but for the global economy, is inflation!
Based on the December quarter, our Consumer Price Index (CPI) rose by 1.3% in this quarter and by 3.5% annually. To put that into context, the Reserve Bank of Australia’s target CPI range is 2-3%. So we have currently gone over the target range.
What’s contributing to CPI Increase?
There are two main reasons for this inflation:
- Lots of issues with supply in the construction industry
- Rising fuel prices
Now, one thing that isn’t talked about in the HSC Economics course is discretionary VS non-discretionary inflation. But taking a look at it when you’re discussing the impact of inflation on families can add a lot of depth to your analysis!
Basically, non-discretionary inflation refers to inflation on the price of goods and services where families are unable to make different purchase decisions. This includes purchases related to four key areas: food, fuel, housing and health. However, discretionary inflation is inflation on goods and services that could be considered ‘optional’, such as entertainment.
This makes recent inflation numbers problematic because non-discretionary inflation, at 4.5%, is higher than the CPI and is more than twice the rate of discretionary inflation, which is currently 1.9%.
Consumer and Business Confidence
Moving onto business conditions and confidence, based on January 2022 data, we are seeing widespread supply issues at the moment with almost half of all businesses (47%) experiencing supply chain disruptions. Of those businesses, 36% are affected to a major extent with delays, inability to obtain certain items, and significant impacts on revenue. Only 2% remain unaffected.
It’s predicted that we are going to continue to see supply issues and inflation with the Ukraine-Russia conflict, which will impact business conditions and the prices we’re currently seeing.
Interestingly, Business Confidence actually rose 15 points in January to reach +3 index points after falling sharply in December 2021 (at -12 index points) when Omicron started to emerge. While this is still below the overall trend, the recovery from December to January does suggest that there are some positives when it comes to confidence in business conditions. However, there are still some challenges and concerns surrounding trading, profitability and employment.
Looking at Consumer Confidence, the Westpac-Melbourne Institute Index of Consumer Sentiment fell by 1.3% from 102.2 in January to 100.8 in February. This can mostly be attributed to Omicron-related disruptions and uncertainty.
The interesting thing is that Consumer Confidence is actually better than it was in pre-pandemic times! Based on February 2020 data, the Consumer Sentiment Index was 95.5, and is currently 100.8. So while we’ve seen a small decrease from January to February, it also shows that a new resilience has emerged from the pandemic and we’ve really matured and hardened over the past two years!
One thing to keep in mind is that this data is before the Ukraine-Russia conflict and floods in NSW and QLD, so Consumer Confidence may potentially see a decrease in recent months.
Wage Growth
The Australian Bureau of Statistics (ABS) noted a 2.3% rise in wages over the year. This was mostly driven by a double-whammy effect of increasing demand for labour and supply shortages, which drove upward prices in the labour market.
While wage growth has historically come from awards and enterprise agreements, current growth is mostly coming from individual agreements and negotiations between employers and employees.
While we have seen some wage growth over the year, if we consider the impact of inflation, which rose by 3.5%, wages have actually gone backwards by around 1.2%. They have also ultimately remained consistent with pre-pandemic wages.
Employment
The current unemployment rate is really low at around 4.2% while underemployment increased to 6.7%. The participation rate (the number of people who are currently part of a workforce) increased to 66.2%, which is consistent with pre-pandemic levels.
An interesting point is that youth unemployment has decreased dramatically to 9%. Reasons for this include that there’s been a fiscal push from the government to re-skill young people and boost employability prospects.
Another reason could be that corporations have struggled recently since they rely heavily on skilled labour, which has become hard to find since skilled migration has decreased. As a result, they’re turning to young people for skilled labour.
Monetary Policy and Final Thoughts
An important thing to consider with monetary policy is that the RBA uses a strategy called jaw-boning, where it may discuss and suggest things such as a rise in interest-rates, so that the market will respond accordingly. It creates a sort of self-fulfilling cycle without the RBA actually having to take that action.
With that in mind, let’s take a look at some monetary policy observations in relation to the Australian Economy. They noted that there was a strong bounce-back to the Delta variant and predicted that this will take a dip in the March quarter because of Omicron.
However, they also noted that the economic impact won’t be as drastic as other COVID variants. Overall, they highlighted that we have made good recovery over 2021 and the start of 2022.
Their overall policy decision moving into 2022 is to cease Quantitative Easing (QE) from 10th February 2022, in terms of bond purchase. Apart from that, they’re mostly relying on jaw-boning to influence economic aspects through their meeting minutes!
So there you have it!
We’ve unpacked some of the key current economic aspects that should help you bring in great real life examples for HSC Economics. Applying relevant and current examples can heavily strengthen your analysis for your next assignment. Good luck!
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Maitreyi Kulkarni is a Content Writer at Art of Smart Education and is currently studying a Bachelor of Media and Communications (Public Relations and Social Media) at Macquarie University. She loves writing just about anything from articles to poetry, and has also had one of her articles published with the ABC. When she’s not writing up a storm, she can be found reading, bingeing sitcoms, or playing the guitar.
