Australia s Financial Stability With Inflation Under Control

1. Introduction Following two decades of constant growth, substantial employment, contained inflation, minimal public debt and a solid financial system as a result of years of structure and policy reforms, Australia today has one of the strongest and largest mixed market economy in the world. Since the early 1980s, successive governments have deregulated financial and labour markets and reduced trade barriers making Australia one of the Asia–Pacific’s wealthiest nations who has enjoyed more than two decades of economic expansion. Although Australia managed to emerge from the global financial crisis relatively unscathed, their impetus expenditure by the previous Labour government generated a fiscal deficit. Australia is globally†¦show more content†¦Australia’s economy over the past decade has improved steadily. Over the 2004 – 2013 period, the GDP averaged at USD1.05 trillion1 and rise in GDP per capita from USD30,449 in 2004 to USD67,4732 in 2013. Rich in natural resources, one of the biggest sources of Australia’s income comes from exporting iron ore to their biggest trading partner – China where demand is highly sought after by the construction industry. Chinese demand for steel rocketed over the past decade as their economy flourished thus jacking up the prices for iron ore - the raw material to produce steel. This led to a boom in Australia’s mining industry from 2004 which saw an increase in contribution to GDP (see table 1)3. Table 1Historical Data Chart Australia was thriving with an annual GDP growth rate averaging 3.01% until late 2008 to 2009 which plummeted to 1.73%4. They suffered the same fate as rest of the world, somewhat more insulated, with the impact of the Global financial crisis (GFC) after announcement of the collapse of Lehman Brothers. The clear evident impact of the financial crisis on most Australian households was the large decline in equity prices which had fallen by about 50% and dropped further in early 20095. Business and consumer confidence fell as a result of reduced wealth of Australian households. The same was observed in external demand i.e. demand for Australia’s