Executive Summary:

This is a report of current Australian economic situation, and a forecast of Reserve Bank of Australia’s cash rate movements in 2015. This report will help the board and management to formulate budget and set goals for the upcoming years.

The report will look into and analyse in details all economic indicators and other internal non-numeric based factors such as geographical advantages, politics, policies, regulations as well as external factors such as world economy, politics and laws of major trade partners, international exchange rates, etc. that directly and indirectly impact the economy. The report will show how simple forecasting of cash rate movement is a complex process, as it is directly related to Reserve Bank of Australia’s fiscal and monetary policy.

Introduction:

Former Australian Prime Minister Kevin Rudd once described “Australia to be a nation whose origins lie firmly in the west, but whose geo-political and geo-economic circumstances are shaped in large part by our location in the east, this is the inescapable expression of the Australian condition. (Economy Watch, 2010)” And he was right because where in the early 19^th century Australia’s major trade partner was the Western world, along with time it shifted to the eastern side, and Asia became the primary focus of Australia’s economic policy. And understanding this is crucial to all large, medium, and small business in Australia, for budget forecasting, and goal setting, and this is true for every sector from hospitality and tourism, to mining and banking sectors. We will now look into current Australian economic situation and will conclude with a forecast of Cash Rate Movement.

Body:

The Australian Business Review published a report by Steen Jakobsen, Saxo Bank chief economist on 14^th of November 2014 (AAP, 2014). In his report Mr.Jakobsen said Australian Economy will face recession in 2015, he also pointed out that ASX is dominated by mining companies and financial institution, and that the country should focus on technology sector, and small and medium size enterprises. Like many in past, the economist supported the idea that education and research should be the back bone of an economy.

Understanding Australian Economy:

The table below will show a summary of Australian Economy as at Demeter 2014 (Trading Economics, 2014). From the table we can see that Mr. Jakobsen’s reasons for such declaration. The Australian currency rate is still higher than sustainable, the stock market is down, high unemployment rate, lower consumer spending, budget deficit, everything contributed to it, and even an all-time low cash rate failed to attract more investments, for which probably high Australian labour cost may be liable.

Australia | Economic Indicators

The chart below will help us understand the current Australian economy from the viewpoint of the federal government. Where it shows how the western part of the country is based on mining industry where the eastern part especially New South Wales and Victoria are manufacturing, finance, and service based. The contrast between these two regions has often led to disagreements within t