Essays on Effect of Global Crisis on Australian Economy Case Study

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The paper "Effect of Global Crisis on Australian Economy" is a perfect example of a micro and macroeconomic case study.   The interconnection of the financial markets means that shock displayed by the global crisis was fast felt in Australia. There was a sharp decrease in prices of financial assets whereas access to international capital proved difficult. In broad terms, the confidence of businesses, consumers and external demand fell whilst domestic demand weakened. By the month of November 2008, equity prices in Australia had declined by 50 percent compared to prices during the previous year.

The equity markets within Australia declined further than both the United States as well as the global markets in the same period. The disintegration of international capital flow made access to funding extremely difficult. For instance, there was a cessation of issuance of funds to RMBS, despite low-default-rate of Australian mortgages (Dyster & Meredith, 2012). The resultant effect of a weaker economy was a reduction in demand for Australian exports. This subsequently resulted to fall in volumes as well as prices that led to the decline of the country’ s trade plus the exchange rate.

Between December 2008 and April 2009, terms of trade declined by 10 percent, while more declines were felt in June 2009 reflecting the movement of prices regarding key commodity exports. The dollar fell by 10 percent on a trade-weighted basis within the two years period (Guillé n, 2009). According to Dyster & Meredith (2012), a major transmission mechanism of the global financial crisis was how it affected business confidence in Australia. By the close of 2008, the level of business confidence had declined sharply whilst investment decisions plummeted.

According to a survey conducted during the period, business conditions were hitting their lowest points since the 1991 recession. As a result of the global forces, Australian economy backtracked through the slowdown felt was moderate as compared to other developed nations. Despite these effects, business confidence recovered very quickly in Australia than other OECD nations. The main factor that resulted in such regain was the announcement of Jobs Plan as well as the Nation Building. Consumer confidence resurfaced and rose sharply in 2009 with the announcement of the 2009 GDP outcome.

References

Dyster, B. and Meredith, D., 2012. Australia in the global economy: Continuity and change. Cambridge University Press.

Guillén, M., 2009. The global economic & financial crisis: A timeline. The Lauder Institute, University of Pennsylvania, pp.1-91.

Aloui, R., Aissa, M.S.B. and Nguyen, D.K., 2011. Global financial crisis, extreme interdependences, and contagion effects: The role of economic structure?. Journal of Banking & Finance, 35(1), pp.130-141.

Rudd, K., 2009. The global financial crisis. Monthly, The, (Feb 2009), p.20.

Obstfeld, M. and Taylor, A.M., 2004. Global capital markets: integration, crisis, and growth. Cambridge University Press.

Cetorelli, N. and Goldberg, L.S., 2011. Global banks and international shock transmission: Evidence from the crisis. IMF Economic Review, 59(1), pp.41-76.

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