Australia 's Balance Of Payments

This report will show an overview of the current state of the Australian economy and its management by the Federal government through examining economic indicators such as economic growth (GDP), unemployment, inflation and trade.

The figure obviously had not return to pre-crisis level. Moreover, recent commodity prices had fallen significantly which will affect Australia’s short and long term economy.

Achieving external stability is an important objective of economic policy, achieving this stability ensures that imbalances in Australia’s economic relationships with other economies do not hinder achieving domestic economic policy goals such as lower rate of unemployment, higher rate of growth and lower inflation. There are three main factors that effect external stability the deficit on the current account (CAD), net foreign liabilities and the Australian dollar. Australia’s experienced times when overseas investors decided that the economy’s external position was unstable, and when investors like such decide to withdraw their

Australia’s lack of international competitiveness as a result of geographical location and small population, as well as the decline of the manufacturing industry to overseas low cost producers, with the problem being further increased by the high AUD exchange rate, as a result of the mining boom. The fall in domestic production has led to an increase in imports and a fall in productive innovation compared to advanced economies has led to a rise in CAD.

The spread of globalisation especially since 1990 has introduced many new elements into the financial markets and what determines the value of a nation 's exchange rate. This does not just apply to Australia, but as we saw in the later half of the 1990 's, to many other nations in the world. Firstly, trade in goods and services makes up a much smaller proportion of the demand and supply for currency. In the world economy, payments for international trade only account for about 1% of foreign exchange transactions. The total foreign exchange requirements for exporting and importing of goods and services in Australia is less than 3% of the total use of the foreign exchange turnover in Australian dollars (Reserve Bank Bulletin, Table F7 and Australian National Accounts, 5206.0). The main purpose for foreign exchange trading is international financial transfers of

Foreign investment has allowed the Australian economy to thrive cutting unemployment, doubling the country’s wealth and reducing national debt. Australia has leveraged trade to its advantage, with mining and other industries taking advantage of the fast-growing Chinese economy. Australia removed most trade tariffs and opened its banking to foreign partners, creating a successful investment climate.

It is said that we are living in turbulent times. The Australia’s once-in-a-century commodity boom has reversed, leading many miners to cut back on investments and consolidate; which is expected to generate great social and economic hardship throughout these years. While more hope is casted into the construction sector, a cooling change blows in the housing market. Unemployment is tipped to rise and when it reaches a record high; consumption will continue to grow at a below-average pace, so business sentiment will remain fragile. Rather than fuelling the economy, the fiscal policy keeps straining it whilst the monetary policy will struggle to have an impact – indicating that the Australian economy is slipping downwards.

2011). A depreciating Australian currency is potentially inflationary, the depreciation of the Australian dollar lead to high Australian inflation rates, it cause a loss of export markets and reduce demand for Australian currencies. In this way, Australia’s inflation rates and costs are higher than its overseas competitors, at the same time domestic goods in Australia would be more expensive (Edge, K 2009). As well as inflationary pressures in Australia will increase, as imports would now be more expensive. This may increase pressure on the RBA to raise interest rates to defend its inflation target. With the result that Australian multinational corporations would cause it lost their overseas’ markets and customers, profit which from overseas would be decline and also pay for more interest

The world economic environment is continually undergoing rapid integration through exports, imports and the coordination of monetary and fiscal policies. Both Australia and Japan’s economies are mixed, whereby they contain elements of planned and market economies. Over the past 3 decades the Australian and Japanese economies have experienced gradual economic growth. Japan experienced a recession in 2014. The monetary system used in Australia and governed by the Reserve Bank of Australia who set the interest rate on overnight loans. The Australian currency is called the Australian dollar (AUD). The Australian Stock Exchange (ASX) is Australia’s stock market, which allows the buying and selling of shares of companies. The Japanese currency is

Asia Pacific Economic Cooperation (APEC) is the pre-eminent economic rally in Australia’s region. APEC’s goal is to drive an extensive trade and investment liberalisation and facilitation agenda. It is focused on structural reform as a means of raising competitiveness and the efficiency of trade and investment flows. It has helped Australia with building and strengthening ties with other countries such as Brunei, Singapore, Philippines and other countries in the region. In 2009, 70% of Australia’s trade is with APEC countries.

The average Australian debt is growing, and the average household debt amount is almost quarter of a million dollars. While a large chunk of this is tied to home ownership, many Australians dread opening their credit card bills each January. Facing up to end-of-year overspending is depressing, but there is a way to avoid this happening again next Christmas, but you have to start thinking about it now.

The second key national interest of Australia is the economy. Australia’s capital, jobs, standards of living, technological innovations and social advances rely substantially on exports and commodity values within Southeast Asia and the Pacific (Department of Foreign Affairs and Trade 2016a). The stability of South East Asia and the Oceania

The Reserve Bank of Australia plays a significant role to Australia’s financial market and economy as the central bank of Australia. The RBA operates in financial markets and presides over Australian’s currency and international reserves. Their key responsibilities and goals are to conduct monetary policy, stabilising currency and employment rates, and economic welfare inclusive of Australian society. Monetary policy is defined as ‘the ability of the Reserve Bank to influence interest rates and the cost of credit’. These goals and responsibilities are achieved through the conducting of monetary policy and open market operations, consequently affecting the economy’s interest and therefore, cash rate. Interest rate is a percentage of the principal amount charged from the lender for the use of the money, whilst the cash rate is the interest rate specifically on overnight loans. Through the exploration of interest and cash rates, financial markets, monetary policy, open market operations and transmission mechanism, we are able to identify the influence of the RBA’s use of monetary policy in regard to the level of interest rates and economic activity in the economy.

Australia is a country which highly dependent on international trade. During last year (2014), the amount of exporting of goods and services is 304.088 billion USD and importing of goods and services is 311.361 billion USD, while a trading deficit of 7.274 billion existed last year.(Figure 12 and 14). If we compare the exporting and importing amount with GDP, we notice that the proportion of exporting and importing contributed to GDP are respectively 20.9% and 21.4%, which implies that international trade is a significant mark of Australia’s economy.(Figure 13) In comparison, the exporting and importing contributed to GDP is 13% and 17% in United States, 16% and 19% in Japan, 46% and 39% in China. (Figure 15)

“Balance of payment is a systematic record of a nation’s total payments to foreign countries, including the price of imports, the outflow of capital and gold, and the total receipts from abroad, including the price of exports and the inflow of capital and gold.”