The Australian economy has gone from sluggish to supercharged in one year

The Australian economy has not been doing so well in recent times. The growth rate in the previous year was recorded as about 1.9%. This growth was pretty much in line with the expectations on the economy as of that time. The last 12 months, however, have been a completely different story.

The growth has dramatically picked up and the records for that period show that the economy has grown by about 3.4%. This growth is both unprecedented and pretty impressive. The quick transition is however not expected to last for long according to experts.

The recent expansion, which is the biggest in about six years, is touted as one that will fall back to about 2.5% in the coming year. Experts feel that the rapid expansion will soon average down as adjustments take place. Experts have hinted that while the growth is commendable, people should not expect it to be the norm for the coming years. The main reasons why pundits think that the growth will not sustain are tied to consumer trends and the overall activity in the economy.

Looking at the contribution of various sectors to the growth of the GDP, it is clear that business has been a major part of the rapid growth. Usually, a specific set of factors are responsible for the short-term spikes in GDP. The percentage points of the different sectors have shown that while some sectors have grown positively, others have also regressed. It is these sectors that are on a downward growth that will hold back the economic growth in the short-term duration.

As for the business sector, the annual growth has been impressive. The business sector is particularly the key factor to the spike in the GDP. According to experts, up to two-thirds of the growth can be directly linked to business. According to Admiral Market (German version) the financial market has been performing well and this has been reflected in the annual growth. Inventories and other kinds of investment take up the recent of the percentage growth for the period recorded.

The outlook for investment will thus play the central role in determining whether the GDP growth will be sustained. It has been noted by economists that it is unlikely for the business to pick up higher than it has been for the past one year.

Owing to the lack of additional vibrancy in the business sector, it can only be expected that the growth will largely remain constant or slow down. It is expected that investment in the public sector will be instrumental in the coming year but it will not account to much by itself. Government spending will barely have any effect on the business realm.

Usually, inventories do not account for a big share of GDP growth. Even though this kind of investment is crucial for growth, it does not account to much when every other factor is counted. The growth of private investment is usually the main contributor to GDP growth. Private investments account for up to 20% of the economy and changes in this sector thus have major effects on the economy.

Considering that private investments might just have peaked, not much growth is expected. Public investment only accounts for 5% of GDP and the increased public spending will thus not have much effect on the economy.

In recent months, it has been observed that the growth of the non-mining business has slowed down. This has also prompted firms to reduce investments in general. Building approvals have also taken a slump recently. The prospects are thus on the downward trend rather than going up. With such a decline in two key investment areas, it will not be possible to see an increased or sustained growth of the GDP.

The current financial year will not see any major jumps owing to the reduced economic activity. Consumption is a huge part of the economy but since it will also neither grow nor decline, the acceleration of the economy is bound to stop. Experts thus have fairly consistent opinions about the economy owing to the trends that have already established themselves. It is unlikely for any other major economic changes to take place. If the current trends are sustained, then the economy will definitely take the path that pundits have established.

Mike Smith
Mike Smith
Executive Editor at Best in Australia. Mike has spent over a decade covering news related to business leaders and entrepreneurs around Australia and across the world. You can contact Mike here.
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