Comparison Of Macroeconomic Indicators Of Australia And New Zealand

Data on key macroeconomic indicators: Australia vs New Zealand

Macroeconomic indicators are useful factors when comparing the trends in economic growth either in one country or different countries. It’s through the consideration of macroeconomic indicators that economists determine whether an economy is advancing, stagnating or declining. So, these indicators are basically strong tools in the evaluation process of economy. To be able to compare the economy of Australia and New Zealand, four macroeconomic indicators were used in this paper, these are: real GDP growth rate of the two countries, cash rates and official cash rates, unemployment rates and inflation rates.

According to the recent statistics in June quarter, the economy of Australia has recorded an advancement of 0.9% above the market consensus of 0.7% expansion and after an upward revised growth of 1.1% which had been realized in the previous quarter. Mainly, domestic demand and the foreign trade were ranked as the top supporters of this growth because fixed investments had remained flat (Cecchetti and Kharroubi, 2015). An economic growth rate of 3.4% had been recorded through the second quarter following the 3.2% expansion which had been realized in the prior quarter and exceeding the 2.8% growth expectations. This has become the fastest annual expansion rate since the third quarter of 2012. Generally, the average GDP Growth Rate in Australia is 0.86% from 1959 until 2018, with its highest level at 4.40% in the first quarter of 1976 and  a lowest level of -2 percent which has been realized in the second quarter of 1974 (Bhattacharya, Paramati, Ozturk and Bhattacharya, 2016, p.740).

The largest contributor towards this high GDP growth rate came from the final consumption expenditure and which can be categorized into two: household consumption and government spending. Also, the exports had a contribution of 0.2% while non-dwelling construction acted as a drawback towards the growth by subtracting 0.1 percentage points off the growth rate (Ward, Sutton, Werner, Costanza, Mohr and Simmons, 2016).

New Zealand economy on the other hand recorded a slight advancement of 0.5% on the first quarter of year and which was 0.6% low compared to what had been recorded in the fourth quarter of 2017 although it matched with the market expectations of the country (Summers, 2014). The slow growth was contributed by sectors like mining which had dropped from 1.4% to -0.2%, utilities which had dropped from 0.7% to -0.4%, construction which had dropped from 0.8% to -1.0% and services which had dropped from 1.1% to 0.6% (Herndon, Ash and Pollin, 2014, p.260).

There were however some other sectors which did well. For instance, manufacturing rebounded from 0.1 to 0.7% while primary activities rebounded 0.6% after the 2.6 contraction which had been recorded in Q4 of 2017. Generally, the average rate of GDP Growth in New Zealand was 0.64% from 1987 until 2018 and with the highest level of 2.80% in the Q3 of 1999 and the lowest record -2.40% in the Q1 of 1991 (Petri and Plummer, 2016).

Reserve bank of Australia has maintained the record of the country’s cash rate at a low percentage of 1.5% just as it was expected. This has extended its inaction record period beyond two years, amidst low wage growth and weak inflation. The bank aimed at triggering the country’s economy growth above 3% in 2018 and 2019 (Fang, Kosev and Wakeling, 2015, p.30). Following this step, the first half of 2018 has seen the country’s economy grow at an above trend- rate. The business conditions have also been favorable and non-mining business investments have increased. Higher public infrastructure investments have also supported the economy in its growth in the sector of exports. There is however an expected source of uncertainty from the household consumption which has been growing at a very slow rate and debt levels accumulating at high rates.

Real GDP Growth Rate

Considering the terms of trade within the country, it’s beyond any reasonable doubt that they have increased over the past years due to the rising commodity prices. Although the trade terms are expected to drop over time, they are expected to stay relatively high (Sathye, 2013). The Australian dollar is also expected to remain within the range it has been operating in the past few years on a trade-weighted basis, although it has been depreciating against the other currencies like the US dollar.

Considering New Zealand’s official Cash Rate (OCR), statistics indicates that it has remained at 1.75 % and it’s expected to remain at this level through 2019 and into 2020, longer than it had been projected in the country’s May statement. The direction of OCR’s next move is unpredictable because it could take an up or down phase. Despite of the moderated economic growth, it is expected to pick up its pace over the remaining part of the year and be maintained all through 2019 (Berument and Froyen, 2015, p.175).

The country’s low dollar exchange rate as well as its robust global growth will support its export earnings. Locally, both capacity and labour constraints will promote business investments as a result of low interest rates. Also, government spending and investments are also set to rise, while spending on household and residential construction will likely remain solid (Kelsey, 2015).
Through this approach, the labour market has been tightened and employment level geared towards its maximum sustainability. It is however expected that unemployment rates will decline modestly from their current levels. Contrally to the bright side of the OCR policy, inflation is expected to rise towards a 2% rate over the projected period as a result of capacity pressure bites. The path will definitely be a bumpy one however because of off price changes expected on global oil prices, low exchange rates, and rising petrol excise taxes (Berument and Froyen, 2015, p.175). There are also other risks to the central forecast of the country due to this moderation. First, this will create low confidence in business that will in turn affect both employment and investment decisions. Conversely, inflation rates are expected to rise faster due to cost pressures.

The unemployment rate in Australia has unexpectedly inched to 5.3% this year from 5.4% in the previous month and also below the market consensus of 5.4 percent.  This has marked the lowest unemployment rate in the country since 2012, a declined of 5,700. The country’s unemployment rate has an average of 6.87% since1978 to date and with its highest level of 11.2% which was witnessed in 1992 and lowest level of 4% in 2008 (Levy, Dong and Young, 2016, p.580). The number of unemployed citizens fell from 711700 to 706000, with those looking for part time jobs decreasing by 8000 while those looking for full time jobs increasing by 2300

Current statistics have indicated that the unemployment rates in New Zealand have edged up to 4.5% in the Q2 of 2018 from 4.4% record which has been there for the last nine years.  It sealed a Q5 streak with declining unemployment rates as the number of unemployed citizens rose by 4000 to hit a level of 124000 and employment went up by 13000 to 2.631 million (Kelsey, 2015). The unemployment rate in the country has hence averaged 6.05% between 1985 and 2018 where it attained its highest level of 11.20% in Q3 of 1991 and the lowest level of 3.30% in the Q4 of 2007.
Australia’s inflation rate has risen from its previous two quarters rate of 1.9% to 2.1% through the year contrally to the market estimates of 2.2%. It has been the highest rate since the Q1 of 2017 and which has mainly been linked with the high costs of transport (Bonoli, 2017). On quarterly basis, consumer prices increased by a rate of 0.4% hence remaining unchanged from the previous quarter and marginally below the 0.5% estimate. In average, Australia’s Inflation Rate has been 5.02 % since 1951 to 2018, having hit its highest level of 23.90% in the Q4 of 1951 and lowest level of -1.30% in the Q2 of 1962.

Transport costs have been increasing by 5.2% annually from the Q2 of the 2017 which has been driven by the increased automotive fuel prices and which increased by a rate of 11% (Bidargaddi et al, 2015, p.16). Also, this high rate of inflation was contributed by the increased prices of alcohol and tobacco by a rate of 0.8%; recreation and culture by 0.2%; education by 0.1%; and insurance and financial services by 0.5%. On the other hand, some of the sectors which tried to adjust these escalated rates include food and non-alcoholic beverages by 0.2%; housing by 0.2%; and health by 0.8%.

The inflation rate of New Zealand has increased by a margin of 1.5% annually following the 1.1 % increase in the previous quarter. This rate has come slightly below the consensus (1.6%) and became the second lowest inflation rate for this country’s past six quarters. Unlike the case of Australia where largest contributor to its high inflation rates has been the rising transport costs, in New Zealand  has been attributed to high prices for housing and household utilities. In average, the Inflation Rate of New Zealand has been 4.68% from 1918 to 2018. It reached its maximum of 44% in Q3 of 1918 and its minimum of -15.30% in the Q1 of 1923 (Bonoli, 2018).

Generally, the high inflation rates which have been observed in this country have had different sectors contributing, these sectors include: food industry by 0.1%; transport by 1.5%; miscellaneous goods and services by 0.6%; and alcoholic beverages by 1.1%. Meanwhile, housing and household utilities have been the major contributors, contributing 3.1% to this rate.
Some of the sector which tried to adjust this trend include: household contents and services by 0.1%; clothing & footwear by 0.7% and communication services by 0.2% (Hecq,Telg and Lieb, 2017, p.48). 

From the discussion above, it is clear that in both Australia and New Zealand, the GDP has been advancing. This is an indication that both countries have experienced GDP growth rate. In both countries, the growth rate has been significantly low as it can be seen from the statistics (Australia 0.86% and New Zealand 0.64%). In both countries, the growth in the GDP rate has been contributed by different sectors of the economy without any of them being the dominant contributor. This can be seen from the case of Australia where the contribution has been made by domestic demand and the foreign trade sectors because fixed investments had remained flat (Anari and Kolari, 2016). On the case of New Zealand, it has been contributed by sectors like mining which had dropped from 1.4% to -0.2%, utilities which had dropped from 0.7% to -0.4%, construction which had dropped from 0.8% to -1.0% and services which had dropped from 1.1% to 0.6%. The manufacturing sector has also been a main contributor. The relationship can be seen from the two charts below;

Just like in the case of GDP growth rates in both countries, inflation rates have also indicated an increasing trend for both countries. The rate of increase in both countries has however been slow as it can be seen from the statistics where Australia’s inflation rate has risen from its previous two quarters rate of 0.2% while that of New Zealand has increased by a margin of 1.5% annually. In both countries, the increasing trend has been linked with different sectors of the economy. For the case of Australia, this has mainly been linked with the high costs of transport and production costs in other sectors of economy like mining. In the case of New Zealand, the trend has been linked with high prices for housing and household utilities (Kumar, Afrouzi, Coibion and Gorodnichenko, 2015).
Unlike the rest of the macroeconomic indicators of the two countries which have indicated some common direction, unemployment rates have taken different routes in these two countries. In Australia, unemployment rates have unexpectedly dropped to 5.3% from the 5.4% rate from the previous month hence marking the lowest unemployment rate in the country since 2012 (James, 2015). The country’s unemployment rate has averaged at 6.87% since1978 to date and with its highest level of 11.2% which was witnessed in 1992 and lowest level of 4% in 2008. On the side of New Zealand, the case is different since the rates have edged up to 4.5% in the Q2 of 2018 from 4.4% record which has been there for the last nine years. The two differences can be shown in the chart below;

Both cash rates and official cash rates are monitory policies which are used by central banks to control circulation of money within the country. The approaches which are used in these two approaches are similar, like the fiscal policy and monitory policy. Through these two policies, a country is able to obtain economic stability as cash flow control indicates a controlled economy (Coibion and Gorodnichenko, 2015, p.200). Considering the case of Australia and New Zealand, the cash rates in Australia will definitely drive the movements of New Zealand’s OCR. This is in consideration to the fact that these two countries are trading partners and regulation of cash rates impacts the country’s currency value. Imports and exports are therefore affected directly and hence triggering adjustments in New Zealand’s OCR. This can be indicated by the graph below;

Unemployment Rate

From the above statistics on the macroeconomic indicators of Australia, it is beyond any reasonable doubt that this economy will keep its robust economic growth. This will be the case following the business investments which have indicated potentiality of growing and the booster on exports due to new resource capacity into the stream. The public infrastructure investments will also play a crucial role in the growth (James, 2015). On the side of private consumption sustainability, strong labour markets and rising household incomes will take charge. The tightening of the monetary policies by the central bank will act as the foundation to ensure that the economic progress is achieved. For that matter, Australia is expected to experience expansion soon. This can be represented as below;

Just like in the case of Australia, New Zealand is also expecting a solid economic growth. This can be attributed to the current increase in the countries interest rates as well as government spending to ensure balance in macroeconomic policies (Kumar et al, 2015). These two approaches are also expected to lower the pressure in housing markets pressures and boost weak productivity hence avoiding further house price breakouts. For that purpose, New Zealand is expected to experience expansion soon. This can be seen from the graphs below;

Conclusions

From the above scrutiny it comes out clearly that macroeconomic indicators play crucial roles in collection of economic statistics. For instance, they are important sources of information regarding investment decisions as it has been seen in the case study of Australia and New Zealand. Also, it has been set out clearly that macroeconomic indicators are crucial factors determining the status of an economy in global markets. When the rate of inflation is high in the country for example, the currency value is negatively affected and that hinders global trade. For that matter, macroeconomic indicators must be highly taken care of in an economy which aspires to grow.

Considering the adverse impacts of uncontrolled macroeconomic indicators, it is very clear that they should be given the first priority in an economy. So, unlike what has been the case with most of economies (waiting until the impacts goes viral), evaluation of these indicators should be done frequently to prevent the last minute rush which makes them uncontrollable.

References 

Anari, A. and Kolari, J., 2016. Dynamics of interest and inflation rates. Journal of Empirical Finance, 39, pp.129-144.

Bonoli, G., 2017. Labour market and social protection reforms in international perspective: parallel or converging tracks?. Taylor & Francis.

Bidargaddi, N., Bastiampillai, T., Schrader, G., Adams, R., Piantadosi, C., Strobel, J., Tucker, G. and Allison, S., 2015. Changes in monthly unemployment rates may predict changes in the number of psychiatric presentations to emergency services in South Australia. BMC emergency medicine, 15(1), p.16.

Bonoli, G., 2018. Labour market and social protection reforms in international perspective: parallel or converging tracks?. Taylor & Francis.

Berument, H. and Froyen, R.T., 2015. Monetary policy and interest rates under inflation targeting in Australia and New Zealand. New Zealand Economic Papers, 49(2), pp.171- 188.

Bhattacharya, M., Paramati, S.R., Ozturk, I. and Bhattacharya, S., 2016. The effect of renewable energy consumption on economic growth: Evidence from top 38 countries. Applied Energy, 162, pp.733-741.

Cecchetti, S.G. and Kharroubi, E., 2015. Why does financial sector growth crowd out real economic growth?.

Coibion, O. and Gorodnichenko, Y., 2015. Is the Phillips curve alive and well after all? Inflation expectations and the missing disinflation. American Economic Journal: Macroeconomics, 7(1), pp.197-232.

Hecq, A., Telg, S. and Lieb, L., 2017. Do Seasonal Adjustments Induce Noncausal Dynamics in Inflation Rates?. Econometrics, 5(4), p.48.

Herndon, T., Ash, M. and Pollin, R., 2014. Does high public debt consistently stifle economic growth? A critique of Reinhart and Rogoff. Cambridge journal of economics, 38(2), pp.257-279.

James, C., 2015. New territory: the transformation of New Zealand, 1984–92. Bridget Williams Books.

Kumar, S., Afrouzi, H., Coibion, O. and Gorodnichenko, Y., 2015. Inflation targeting does not anchor inflation expectations: Evidence from firms in New Zealand (No. w21814). National Bureau of Economic Research.

Kelsey, J., 2015. The New Zealand experiment: A world model for structural adjustment?. Bridget Williams Books.

Kelsey, J., 2015. The New Zealand experiment: A world model for structural adjustment?. Bridget Williams Books.

Fang, A., Kosev, M. and Wakeling, D., 2015. Trends in Australian Corporate Financing. RBA Bulletin, pp.29-38.

Levy, D., Dong, Z. and Young, J., 2016. Unintended consequences: the use of property tax valuations as guide prices in Wellington, New Zealand. Housing Studies, 31(5), pp.578- 597.

Petri, P. and Plummer, M., 2016. The economic effects of the Trans-Pacific Partnership: New estimates.

Summers, L.H., 2014. US economic prospects: Secular stagnation, hysteresis, and the zero lower bound. Business Economics, 49(2), pp.65-73.

Sathye, M., 2013. Financial crisis and interest rate pass-through in Australia. Review of Pacific Basin Financial Markets and Policies, 16(04), p.1350023.

Ward, J.D., Sutton, P.C., Werner, A.D., Costanza, R., Mohr, S.H. and Simmons, C.T., 2016. Is decoupling GDP growth from environmental impact possible?. PloS one, 11(10), p.e0164733.