Economic Policy Objectives

Sustainable Economic Growth

What is it?

The general meaning for economic growth is increasing the capacity of the economy to meet more needs and wants of its members. The key word here is 'sustainable'. Sustainable economic growth means having a rate of economic growth that:

  • Does not have significant pressure on prices of goods and services

  • Consumes resources at a rate that does not negatively impact on future generations

  • Does not significantly deplete natural resources and cause significant harm to the environment

What is the Target Rate of Economic Growth?

The target rate of economic growth changes depending on the current circumstances of the economy and what is achievable. The general rule is somewhere between 3-4% economic growth.

What Has Been Fuelling Recent Economic Growth?

Australia is largely commodity based, to which movements in commodity prices have determined the level of mining investment and our level of terms of trade. High commodity prices saw mining investment increase beyond what was sustainable to a peak of 4.3% (ABS -Australian National Accounts: National Income, Expenditure and Product, Mar 2012)

The changes in commodity prices and investment has mainly been sourced by China. China's rapid industrialisation saw significant increases to real Chinese incomes, increasing demand for Australian exports in not just mining, but in other areas such as agriculture and services. 

The current economic downturn can be contributed to China's low economic activity with reduced stimulus measures. On the plus side, China has been reducing some commodity exports, increasing commodity prices and raising our terms of trade, a contributing factor of economic growth in 2016. 

Why is Sustainable Economic Growth an Objective?

Simply put it, increasing the capacity of the economy means the real incomes of people increase. People can purchase more goods and services raising their material standard of living. Governments have economic objective to ensure their economy remains competitive and is growing at a sustainable and modest rate. 

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