Case Study - Macroeconomic Analysis

Executive Summary
Macroeconomic analysis helps one to examine thoroughly the broader aspects of an economy,
focuses on large numbers, organizations and firms. This report deals with the macroeconomic
analysis of Australian economy in the current situations and its social impact. The Bushfires,
lockdown measures and the drought season have impacted the first quarter of the economy. The
second quarter is also badly hit by the pandemic crisis, as most of the states are experiencing the
second wave of the pandemic. The Aus$18 billion package announced by the Prime Minister
Scott Morrison to keep Australians in jobs is designed to curb the economic impact of COVID-
19 pandemic(AFP, 2020). The report finds that the domestic businesses, exports(especially to
China) were badly hit and the unemployment reached 7.4%, a 19 year high. The international
supply chains were badly affected as there wasn't enough stock in inventories. The GDP of the
country is expected to recover from September quarter and a contraction of around 10% in the
first half of 2020(“Economic Outlook | Statement on Monetary Policy – May 2020,” 2020). The
Australian government shall fix the problems by establishing the working groups specifically for
the worst hit sectors such as businesses, travel and accommodation sector etc. Containing the
number of positive cases through strict measures will ease the lockdown regulations to keep the
economy back on the track. The Reserve Bank of Australia shall not increase the cash rate until
the employment rate is recovered and maintain the inflation within a range of 2-3%. Support the
small and medium-sized businesses and shall cooperate with the most affected industries to
mitigate the further decline in economy.

Table of Contents
1) Executive Summary

2) Overall performance of the Australian economy

 GDP
 Employment indicators
 Monetary policy
 Industrial production

3) Comparison between Australia and India

4) Conclusion and Recommendations

5) References

Overall performance of the Australian economy

Due to the COVID-19 pandemic, there has been huge social impact on the lives of the people
along with the economic impact. It led to depression among the adults, suicide rates are popping
high as people are unable to spend and connect socially with each other. On the other hand,
economics is all about how well are we able to manage the available resources among other
alternative options. The macroeconomics engages with the whole economy rather than with
individual markets. In fact it deals with all the issues of an economy and helps us to understand
the effects of policies and strategies. The nations performance is measured in terms of
macroeconomic indicators to monitor the health of the economy. There are several
macroeconomic indicators to reflect the output of an economy such as GDP, Employment
indicators, Monetary policy, Industrial production etc. I would like to discuss each of them in
detail and how they have affected the Australian economic performance.

GDP
The Gross Domestic Product is a measure of economic growth in a country. In Australia, it is
calculated as the average of GDP measured through production, income and expenditure by the
Australian Bureau of Statistics(“Economic Outlook | Statement on Monetary Policy – May
2020,” 2020). This is one of the best methods to measure the growth because one can never have
sufficient data about the economic activities to get a complete picture of the economy. The main
contributors to the GDP are Consumption, Investment, Government spending, Exports and
Imports. It is very important to understand how these factors determine the overall performance
of the Australian economy. The private consumption expenditure stands at 181.314 USD
bn(billion) in March 2020 and 190.052 USD bn in December 2019 which indicates a decrease in
the value(“Australia Private Consumption Expenditure [1959 - 2020] [Data & Charts],” n.d.).
However the data from the Australian Bureau of Statistics shows that the household consumption
decreased by 0.2% through the year and 1.1% in the March quarter(“Main Features - Household
consumption behavior in response to COVID-19,” 2020). Below is the sector wise contribution
to the GDP of Australia.

S.NO Economic Sectors % contribution to GDP

1 Service sector 66.15
2 Industrial sector 25.2
3 Agriculture 2.09
The changes in the household spending pattern were attributed to the COVID-19 and bushfires
which lead to decrease in services consumption. There are travel restrictions, huge fall in hotels,
restaurants etc due to restrictions in indoor and outdoor gatherings and stay-at-home measures
led to decrease in services consumption. Investment is also on a similar trend with consumption,
particularly investment in Equipment, plant and machinery, Buildings and structures have shown
a negative growth in the March quarter. All these businesses were badly affected when the travel
restrictions were tightened, border closures, restricting number of people to assemble at one
place and encouraging social distancing norms. The total capital expenditure has shown a
negative growth of -1.6% in the March quarter according to the Australian Bureau of
Statistics(“Private New Capital Expenditure and Expected Expenditure, Australia, Mar 2020,”
2020). Statistics show that the government spending has increased by 1.6% in the March quarter
as there is an economic downturn due to increase in unemployment rate. There has been so much
of cyclical spending and financial support from the government to save the jobs of the
Australians, However structural spending continues to happen. However this recession has let the
government to financial aid to the businesses who are at complete loss. There is a surplus of 5.7
USD bn in Australia trade balance as the exports stand at 20.6 USD bn against 16.6 USD bn of
imports. The crisis is caused due to health emergency, even through the figures depict an all time
low in Australia's economic records.

Employment Indicators
The global pandemic has let many of the Australians go homeless and many lost livelihoods in
most of the sectors. However, Australia is witnessing the cyclical unemployment due to the
global pandemic crisis and the unemployment rate reached to 7.4%, as the businesses are
experiencing the bad times. This is mainly due to most of the businesses are experiencing huge
losses and started furloughing their employees. The 'Job Maker' plan announced by the Prime
minister will definitely get back the employment and will aid in the recovery of
economy(“Michaelia Cash confident up-skilling Australians is key to economic recovery,”
2020).

Monetary Policy
The monetary policy is formulated and implemented by the Reserve Bank of Australia(RBA) to
set the interest rates in the money market. RBA plays a major role in achieving the
macroeconomic objectives to maintain the low unemployment rate, low inflation rate and
economic growth through open market operations. The inflation will be maintained below 2% by
the RBA over the couple of years. The expansion and ease of monetary policy is made to
increase the demand and support the Australians while dealing with the pandemic. However,
RBA seems to be very coordinative in their approach as long as the normalcy is achieved in the
economic activities.

Industrial Production
The output of the businesses in Australia in the industrial sector have shown a positive growth of
2.6% in the March quarter(“Australia Industrial Production Index Growth [1975 - 2020] [Data &
Charts],” n.d.). Besides the service sector contributes 70% to the GDP, the manufacturing,
mining and textiles contribute a large chunk to the exports. As the nation is fighting with the
COVID-19 pandemic, the major industries continue to perform well and boost the economy.
Moreover, the Australian government is trying to support the industries in order to increase
collaboration and improve market access through these hard times. By looking at the data
available until March quarter, Australia will show a positive growth rates from around
September provided strict health measures are being practiced by not letting the situation go
uncontrollable.

Comparison between India and Australia

Australia
Australian government has been very supportive and proactive in their approach in order to
manage the effects of pandemic on economic activities. There are series of steps taken by the
country to save the people and the economy from the negative impact of COVID-19. It is very
important to understand how the industries and people will respond to such unimagined disasters.
The government has been targeting primarily the most affected because the country's policy is to
put people first. It has provided the support to the not-for-profits and businesses and recently
announced the extension of JobKeeper payment until March 2021(“Economic Response to the
Coronavirus | Treasury.gov.au,” n.d.). The increase in government spending by providing the
economic support package to the most affected workers in the industry and the broader
community in Australia. To support the government, the RBI has also expanded the monetary
policy in order to maintain low inflation between 2-3%, economic growth and has also decided
to keep the low interest rates for the benefit of the Australian community as a whole.
Additionally, it has also announced that it would conduct daily market operations to inject
sufficient liquidity in the financial system. The government continues to address all the sectors,
communities and regions very specifically to meet the needs of the population. The Australian
Treasury, Australian government, Australia's financial regulators and the RBA are collectively
working to ensure a coordinated economic response to the global pandemic. They are making
consistent efforts by estimating the potential impact of COVID-19 through a proper analysis by
the Commonwealth Treasury keeping in mind the situations faced during SARS outbreak 2002-
03. There are massive disruptions in the international trade which led to increased costs in
tourism, education, recreation, air transport and electronics. The decrease in private consumption
led to increase in savings, which means that the consumers will be extra cautious while spending
the money once the economic situation sets in. The government is heading to recover from the
crisis by laying a strong foundation through the above actions and economic measures.

India
India is my home country and is the most populated country in the world next to China.
Although there were escalations initially about the corona virus in the month of January, India
had started to tighten its measures in the month of March when positive cases were reported
across the country. Macroeconomics help us understand how one nation's policies affect the
other in terms of economic activities. The economic response to corona virus has been different
from the other nations in the world. India has removed restrictions in various sectors such as
agricultural marketing, trading etc by alerting the state governments and the local governments in
the country. There was a huge demand for such activities and so the country decided to remove
the restrictions for the legalized economic activities. There were severe restrictions in the
movement of people and the Reserve Bank of India(RBI) had pumped the liquidity into the
financial system to reach out to the loss making firms in the country. However, the informal
firms had not been supported through the injection of liquidity into the system. In a significant
move, the Ministry of Health and Family Welfare has announced the legal framework for
practicing the telemedicine. This allows the Registered Medical Practitioners to provide
healthcare where distance is a crucial factor for the citizens. All the state governments have
worked in consonance with Central government with respect to economic reforms in agriculture,
land reforms, reforms in FDI( Foreign Direct Investment). It has attracted the private sector in
defense sector by increasing the FDI limit from 49% to 74% which is primarily aimed to boost
the 'Make in India' initiative. RBI has opened up the "discount windows" ( an instrument of
monetary policy), to allow the eligible institutions to borrow money on a short-term basis to
maintain the banking system. The Finance Minister has announced the package of 1.7 lakh
crore($ 24 billion) under Prime Minister Garib Kalyan Yojana(a government scheme for the
poor) in order to eradicate the economic and food related distress of the underprivileged citizens.
In addition to the earlier package, The Prime Minister of India had announced a Rs 20 lakh crore
economic package($307.65 billion) on May 12, 2020 to sustain the various financial difficulties
brought by the COVID-19 pandemic. He has also extended the support to provide free rations to
80 crore(800 million) people Although the novel corona virus pandemic has affected the
Pharmaceuticals industry, Automobile industry and Stock market heavily, India is in a very
stable situation for its timely decisions and measures.

Australia and India are two different nations characterized by different cultures, religions, creed
and race. Both the countries have taken the economic measures suitable to their size of the
population and their needs. Each of them should focus on social impact on the citizens because
the mental balance is also very essential for a healthy economy.

Conclusion and Recommendations

The holistic approach by the Australian government has saved the economy from further
economic losses. All the policy measures shall be strictly followed and innovation should be on
focus to revive the economy. It is said that "Necessity is the mother of invention", and this
pandemic will let Australians discover a new tool to deal with such disasters. There are few
recommendations that I would like to suggest to revive the economy of Australia and they are as
follows:

1) Focus on the service sector as they have high consumption rate to rebuild the economy. They
might be excessively dependent on the imports for consumption goods, So framing new set of
regulations for these set of companies can bring back the stability. It is also very essential to stay
globally competitive amid the crisis.

2)Explore and expand the usage of Artificial Intelligence to boost the economy where human
resources are at the risk of getting infected by COVID-19. Especially in the department of health
and welfare, AI can be used to improve the quality, efficiency and safety of their services during
this pandemic.

3) Boosting up innovation, science and technology to fuel the economic growth and prosperity. It
helps us to find effective solutions to the real world problems by collaborating the industries and
researchers.

4) To improve the domestic production of goods and services so that the country remains self-
sufficient at times of crisis. In the long-term, it also boosts the economic growth of Australia. It
can also focus on strengthening the technical and non-technical skills of the citizens by providing
the training programs to fuel the job growth.

5) Help businesses to create more jobs and opportunities to improve the quality of services. This
also should be aimed at strengthening the National Business Simplification Initiative by
streamlining the regulations.

6) Invest in new technologies to develop new resources and markets. It will also lead to better
outcomes by creating new jobs and ensures benefits to the communities. Resources are limited in
nature and therefore sustainable development of resources is a viable option.

References
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avert recession. Business Standard India. Retrieved from https://www.business-

standard.com/article/pti-stories/australia-unveils-11bn-stimulus-to-avert-virus-

downturn-120031200158_1.html
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Retrieved August 7, 2020, from www.ceicdata.com website:

https://www.ceicdata.com/en/indicator/australia/industrial-production-index-

growth#:~:text=Australia

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Australia website: https://www.rba.gov.au/education/resources/explainers/economic-

growth.html#:~:text=How%20is%20GDP%20Measured%3F

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Retrieved August 6, 2020, from www.ceicdata.com website:

https://www.ceicdata.com/en/indicator/australia/private-consumption-

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https://www.rba.gov.au/publications/smp/2020/may/economic-outlook.html

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