2024: Sources and effects of economic growth in Australia

Syllabus Topic

HSC Topic Three - Economic Issues

Economic growth

• sources and effects of economic growth in Australia

• trends in business cycle

INTRODUCTION

Economic growth remains a cornerstone of Australia's prosperity, shaping the nation’s future through a complex interplay of various factors. This article delves into the key drivers propelling Australia's economy in 2024 and explores the diverse impacts of this growth on society and the environment. By examining both the positive and negative consequences, we aim to provide a comprehensive overview of the current economic landscape and offer insights into fostering sustainable and inclusive growth for the future.

SOURCES OF ECONOMIC GROWTH

Natural resources

Natural resources play a crucial role in driving Australia's economic growth. In 2024, the export sector experienced significant boosts, largely due to the country's rich mineral and agricultural resources. Exports of goods and services rose by 0.7%, underpinned by substantial increases in specific commodities. Notably, there was an 8.3% rise in other mineral fuels and an 8.6% rise in non-monetary gold. However, export prices fell by 1.8%, primarily due to decreased mining commodity prices influenced by reduced global demand.

The overall economic indicators show a resilient economy bolstered by its natural resource exports. The GDP implicit price deflator (IPD) increased by 1.3%, driven by rising domestic prices, and the domestic final demand IPD rose by 1.0%, indicating sustained inflationary pressures within the services sector due to high labour costs.

Human Capital – Labour Market

Several trends in the labour market indicate it to be a source of economic growth, where patterns can influence changes in the economic cycle.

• Unemployment and Participation Rates:
  • Trend unemployment rate stable at 4.0%.
  • Seasonally adjusted unemployment rate increased slightly to 4.1%.
  • Trend participation rate stable at 66.8%.
  • Seasonally adjusted participation rate increased to 66.9%.

• Employment Levels:
  • Trend employment increased to 14,402,500.
  • Seasonally adjusted employment increased to 14,406,100.
  • Employment to population ratio stable at 64.1% (trend) and 64.2% (seasonally adjusted).

• Underemployment and Hours Worked:
  • Underemployment rate stable at 6.5%.
  • Monthly hours worked increased to 1,967 million (both trend and seasonally adjusted).

• Full-Time and Part-Time Employment:
  • Trend full-time employment increased by 32,800 to 9,937,100.
  • Trend part-time employment increased by 9,500 to 4,465,300.
  • Part-time share of employment was 31.0%.

• Implications for Economic Growth:
  • Increasing employment and monthly hours worked indicate economic expansion.
  • Growth in full-time employment suggests more stable job opportunities.
  • Stable unemployment and high participation rates reflect effective labor force absorption.
  • Slight rise in unemployment rate and persistent underemployment highlights areas for improvement.

Government Policies

• Expected Budget Surplus:
  • Underlying cash balance surplus of $9.3 billion for 2023-24.
  • $10.4 billion positive turnaround from the mid-year forecast.
  • Higher commodity prices and personal income tax receipts significantly contributed to the surplus.

• Stable Federal Government Net Debt:
  • Net debt expected to remain stable at 20-22% of GDP over the forward estimates.
  • Stability in debt levels supports confidence in fiscal management and economic stability.

• Inflation Moderation:
  • Treasury forecasts inflation to moderate to below 3% per annum for 2024-25 and beyond.
  • Extension of the Energy Bill Relief Fund, providing $3.5 billion support through to 2025-26, contributes to easing inflation pressures.

• Future Made in Australia Initiative:
  • Emphasis on clean energy and critical minerals production.
  • Over $13 billion allocated over the period to 2034, focusing on tax incentives for production.
  • Investment in these sectors aims to foster sustainable economic growth and innovation.

• Social and Affordable Housing Infrastructure:
  • Additional funding for social and affordable housing over the next decade.
  • Increase to Commonwealth Rent Assistance complements housing infrastructure measures.

EFFECTS OF ECONOMIC GROWTH

• Economic growth often leads to increased income and wealth, which improves living standards and quality of life for Australians. Recent trends show that economic growth is expected to grow by 1.1%, reflecting the overall trend in the G7 nation-state averaging 1.7% economic growth. In contrast, however, China’s economic GDP growth remains higher at 5.3%, indicating there’s a significant gap in Australia’s economic growth goals. This slowed economic growth similarly reflects the trends of the current cost of living crisis, posing a risk to living standards of Australians.

• Consumption and savings: The household saving to income ratio fell to 0.9% from 1.6%, indicating a shift in consumer behaviour possibly towards increased spending. However, the RBA outlines that savings are indeed at a 17 year low, making just 1.1% of total disposable income for the average Australian.

SOURCES

Australian Bureau of Statistics: Australian National Accounts

Australian Bureau of Statistics: Labour Force, Australia

SBS News: Savings all gone? You're not alone and it's intentional, says economist

KPMG: Australian Federal Budget 2024

RBA: Key Economic Indicators Snapshot

The Guardian: Australian workers’ living standards have been destroyed