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The Word of Australia

Australia is located in the southern Hampshire and known as a smallest continent. Australia has neighboring countries like Indonesia, New Guinea, East Timor and New Zealand. The continent has six states and two mainland territories. The states of Australia include New South Wales, South Australia, Queensland, Tasmania, Western Australia and Victoria, while as far as two major territories are concerned, their names are Northern territory and the Australian Capital Territory (ACT). The country has a landmass of 7,617,930 square kilometer which is located on the indo-Australian plate. Arafura and Timor are the two seas which separates Australia from Asia. Australia has a strong technology and industries which makes it a prosperous multicultural country which has good results in national and international performance. The country has a wonderful record in health care issues, life expectancy, quality of life, public education, human development, education, economic freedom and civil liberties and rights (Rusden, William G. (2005). History of Australia. 2nd Edition. University of Michigan). Due to Australia’s economical and political stability it is counted as a member of the United Nation (UN), G-20 Major economies and Commonwealth of Nations. The currency of the Commonwealth of Australia is called the Australian Dollar. The country has two largest stock exchanges which play a vital role to keep the economy on the right track; names of these two largest stock exchanges are The Australian Securities Exchange (ASE) and The Sydney Future Exchange (SFE). According to the statistics of Economic freedom, Australia is one of the most strongest and capitalist economies of the world which has a per capita GDP slightly higher than that of Germany, United Kingdom and France. Australia mainly emphasizes on exporting commodities rather than manufacturing it which urges the balance of payment of the country to increase which is currently more than 7% of negative GDP which is ultimately enhancing the account deficit persistently from more than 50 years. The largest export markets of Australia are China, Japan, United States, New Zealand and South Korea. Since the last 15 years Australia has grown at an average rate of 3.6%. As per the statistical data of 2007, there were 10,033,480 people employed, and in the said year the unemployment rate of the country was 4.6%. Inflation rates and interest rates were in control from the decades manifest a figure of 2-3% and 5-6% respectively (Davis, Kevin (2001). Financial Reform in Australia. Dept. of Finance, the University of Melbourne).

The services sector including, tourism, education and financial services contributed 69% of the overall economy while the agriculture and natural resources contributes 3% and 5% respectively in GDP (Business Review Weekly 2009). The economy of the country was on the right track and was moving with a satisfactory pace before the current credit crisis has taken hold of the entire world in its fatal claws. Australia is also severely affected from the financial crisis as the International Monetary fund (IMF) predicted one year before that the country’s economy would fall into recession in 2009 and the forecast was right. Australia’s central bank predicted the economy would barely grow this year, pushing unemployment higher and pulling inflation down in what could be a recipe for further cut in interest rates. United Kingdom and the United States have already cut down their interest rates to almost zero percent to attract the investors (Pataki, G, & Thomas, J (2008). Confronting Climate Change: A strategy for U.S. foreign policy, published by Council on foreign Relations, 2008). In the quarterly statement on monetary policy, the Reserve bank of Australia (RBA) sharply cuts its forecast for growth in this year, blaming a deepening global recession for darkening the outlook for exports and business investment. If we perceive an optimistic approach then we can say that hefty cuts in interest rates, mounting fiscal spending and a lower local dollar would combine to cushion Australia from the worst of the fallout.

The RBA has certainly become aggressive now and decided to cut its key crash rate by four percent in five months which is taking it to a record low of 3.25%. Interbank are also showing a catastrophic graph and reaching 2.25 percent by June. The government has intervened with a stimulus package of $27 billion to be spent on the infrastructure and income support program. Australia’s economy plunges as badly as the government pumped A$10.4 billion last year and now injected A$42 billion this year but unable to halt the reserve bank of the country to cuts its forecast for gross domestic product (GDP) growth FY 2009 to just 0.5 percent , down from 1.75 percent in November. The thing which is worrying Australia’s government continuously is the consistent bullish graph of unemployment which is rapidly rising from February and reached four years high of 5.2 percent. According to the International Monetary Fund (IMF) unemployment is likely to rise significantly in the months ahead, from the current 5.2 percent level. The sharp falls in the economy means the outlook for jobs may be worse than expected, and Australia may not abrogate from the waves of layoffs that are occurring in the US and UK recently.

The country’s economy is deteriorating continuously and the growth was expected to pick up to 2.5 percent in 2010 and return to trend around 3.5 percent in 2011, down from previous anticipation of 3.5 percent and 3 percent respectively. The central bank measures the inflation which seems to be slow to 3 percent at the end of 2009 and to 2.5 percent the year after, putting it back within the RBA’s target of two to three percent a year earlier than previously expected.

As we are cognizant with the fact that Australia relies heavily on the exports and the prediction of IMF regarding the global growth envisage a bad news for the country because IMF expected the global growth to be the slowest since World War II. Business investment was also expected to fall through the next few years, Indeed the RBA estimated that output in Australia’s major trading partners would decline by around 0.75 percent in 2009. Consistent with the large fall in income, real gross national expenditure (GNE) is forecasted to contract modestly through 2009.

Macro-Economical Instances In Australia: Previously the macro-economic policy of Australia were only comprises on one thing, which is to adjust the inflation accordingly. But after the severity of the current financial crisis the dilemma has changed dramatically. The Reserve bank of Australia has reduced the interest rate by 0.75 percent and set it to 3.75% to increase the consumer confidence and the liquidity of the banks. All such kind of decisions has now changed to macro economic decisions. One more decision, which we want to pen down under the kind umbrella of macro economical stance is the bank deposit guarantee.  

Australian federal government has done the same thing by giving guarantee to all the deposits in the bank for 3 years to enrich the performance of the financial sectors and also boost up the moral of the depositors. The Australian Prime Minister Kevin Rudd has announced that the government will guarantee all the deposits in the banks for 3 years. Kevin Rudd said that the Government is also stands behind all the money that the Australian banks borrow from the foreign institutions. Australian government also pumps another $4 billion in secondary market of mortgage. This action of Australian Government will definitely enhance the moral and confidence of the depositors of the bank because globally banks are one of the sectors which are severely hit by the credit crunch (Australian Financial Review 2009). A bill will soon be bought in the parliament which will induce the banks to implement on the measures immediately and then the banks will pay an insurance premium to cover the protection. The information of guaranteeing the deposits brings good news for the banking sector and the S&P/ Australian stock exchange (ASX) surge by 220 points or 5.5 percent to close at 4180.7 in March. HSBC which is one of the largest banks welcomes the Australian government’s action to support the banking system as these are the necessary steps in restoring or recapturing the confidence of depositors and investors. According to HSBC bank, the brutal action will safeguard the Australians from the global financial crisis up to some extent and will help to save the deposits in the banks; all the deposits up to A$ 1 million with HSBC bank Australia Limited are guaranteed by the Government at no cost. Mr. Rudd has enough confidence on their financial sectors. Mr. Rudd says

“Australia is the best country in the world to deal with this crisis and we are well aware how to tackle with this monster”

He percept that we have the best bank regulators in the world and the balance sheet of our banks show the strength of the sector which will leap out from the current financial constrain with the help of current government strategy regarding the deposit guarantee.

As we are all aware that the financial crisis is prevalent in the whole world and the current global crisis is as worse as the depression after the World War II. Likewise, the world is fighting to avert the financial crisis. Australia is also doing the same to strengthen their economy for which they are taking enormous decisions like cut down the interest rates, injecting money in the weaker sectors, introduce the stimulus packages for the economy, but the recent action of guaranteeing the banks deposit was the best one to stabilize the economy and regain the depositor’s confidence.

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