why is the Australian economy slowing down

why is the Australian economy slowing down

                                Australian economy possesses the crown for the economy with no recession from past years. Australia is considering land with no depression. The Australian economy has recorded an uninterrupted growth from the last 27 years. The economy of Australia has even successfully overcome from the recession of 2008.  Many strong developed and underdeveloped economies have affected, but the Australian economy has held his ground in an adverse situation, and this is the dream of many economies. Australian Dollar has also shown stability in past years. 

When you look at the Australian economy, it doesn't have a large economy like the USA or export-oriented economy like China, etc. which can help to have sustainable growth. When you look at the Australian economy it doesn't have any particular sector or factor which is responsible for this growth, but we have to appreciate Australian economist and lawmakers for this, but all this growth is starting to slow down in fact in the second half of 2018. The Australian economy has recorded almost zero expansion and just grew 0.4 percent in the first three months of 2019.  This is a worrying sign for the Australian economy. So why did the Australian economy is facing such a problem? Let's find in this Blog. 

The GDP growth of the Australian economy in 2018 was declining consciously, but the main argument in this at how much? It divided into two different rates. Some sources said it is near 1%, on the other hand, some sources said that it is around 3% official statement of the Government of Australia noted that growth rate is about 2.9%. So it is a bit confusing, but, inevitably, the graph is going downwards. 

-    CEIC

In this, I will discuss points, which are affecting the growth.

1.    The decline in earning from coal –

                                                                         

                                                                                          The Australian coal industry is vital to its economy and acts as one of the pillars of the economy. Australia is the fourth-largest producer of coal in the world. Coal is the second-largest exporting commodity of Australia. In 2016-17 coal industry produced 440 million tons of coals, out of which Australia has exported 202 million tonnes of thermal coal and 177 million tonnes of metallurgical coal. This industry has grown 550 percent from 1999-00. The leading importers of Australian coal are Asian nations. Growing Asian market demanded more coal, which result in more demand and which result in more profit to Australia. This industry has generated approx — $ 5 billion in royalties. 

So technically coal exporting business was profitable for Australia, but the price of coal is starting to decline, which results in shrinking profits. The value of Australia's coal exports is forecast to decline sharply over the next 18 months as thermal coal prices drop 25% and metallurgical coal prices fall 23%. The decline in the spot price of both products will see their combined export value fall from $60.8bn in 2018-19 to $49.9bn in 2019-20, a deterioration of 18%. 

-    Trading Economics

-    Datawrapper

As you guys can see, the declining price of coal hurt the coal earning and this is not good for the economy as this is the second number of most export by Australia. 

Nowadays, the world is changing; the Importance of the use of green and clean energy is rising. Many firms and nations are now taking steps towards it, and people view also changing, and this will surely have an impact on the coal industry. Not immediately but in upcoming years will inevitably show its effect. 

2.    Consumer spending –

                                                      Despite the uplift in jobs – and falling unemployment, which some experts forecast will drop to about 5 percent by year's end – consumer confidence bottomed out in August 2017 at 95.5 according to the Westpac-Melbourne Institute's monthly survey. This result was dragged down by pressures on family finances, and concerns over deteriorating housing affordability and rising energy prices. Anything below 100 means more consumers are pessimistic than optimistic. This same confidence measure then surprised by rebounding to 103.3 in December. Luxury car sales are down, falling 1.8 percent in the 12 months to the end of August 2017, a 15-month low. It was the most significant annual drop in five years. According to CommSec's Luxury Vehicle Index, which tracks sales of 17 brands, including Audi, BMW, Ferrari, Lexus, Mercedes-Benz, and Rolls-Royce. Weak household spending, slowing further from last year and up just 1.8 percent over the year, with households cutting back on their discretionary spending, particularly in new household items, recreation, and hospitality. Household spending overall contributed just 0.1 percentage point to growth.

      

3.    Falling of House prices –

  

                                                            I have talked about this in one of my Blog Australian House bubble.

House prices in Sydney have fallen almost 15% from the peak of the last two year. 

4.    High household debt and stagnant wages –                                                                                          

                                                                                                To understand the effects of household lets first understand what household debt means, Household debt is defined as the amount of money that all adults in the household owe financial institutions. It includes consumer debt and mortgage loans. Australian household debt nears highest worldwide. Australian families are facing a collective $700 billion cut to their wealth from the need to rewind the massive amounts of debt built up during the property boom. Australia's predicament is made worse by the need to cut debt occurring during a period of falling house prices and at a time when the household savings rate is a wafer-thin 1 percent of disposable income. Australian household has been raised past three, In fact, the ratio of household debt to income has more than doubled between 1995 and 2015, going from 104% to 212%, according to the OECD Data released in 2015. This means if the average person earns $80,000 net, they are spending $169,600 per year. Values are approximately so there can be a slight deflection in figure with this Australian worker is getting the smallest pay raise. The reason behind this is mainly companies is not increasing wages to raise their profits. The wage rate is lower than inflation in the country. Many of you will this is common in the developing region why it is a factor for an economic slowdown? The main issue is that Australia is developed the country and due to this standard of living is very high and price of the day to day goods is very high so for payment for that people will need a high amount of wages. In Australia, wages increase is lower than inflation increase, and this is creating problems. To understand the magnitude of this situation, the Australian government has written an article on this topic on 9th of April 2019; I will give a link in 1st comment. 

There are many other factors also, but I have mentioned a few. 

Conclusion –

                                   Australian economy enjoys a long run of almost 27 years without a recession; I would say it happen because of two factors first due to decisions of lawmakers and government, and second luck. Yes, I told luck this is because Australia is unable to diversify its economy at a rate which a developed nation has to. We have examples of many countries falling in recession due to overdependence on one sector. I am not saying the Australian economy will face one soon but if Australian govt. Didn't take a concrete decision but I am sure the Australian economy will surely do something.