Economic growth is generally considered to be the most important measure of an economy's performance. It creates jobs, raises living standards and creates opportunities for the development of a nation. For this reason, the pursuit of economic growth has been a major objective of Government policy. Adverse economic and financial developments in the world's largest economies continue to constrain world growth while the Australian economy remains resilient, growing faster than most other developed economies. The economy should continue to grow in 2003-04 however, the pace is likely to be a little below the trend.
Traditionally economic growth has been regarded as the most important objective for economic management. This is because it makes it possible to achieve other aims. However, while economic growth is essential to achieve many economic objectives, it is not without its problems. Economic growth effects unemployment, inflation, external stability, the distribution of income and the environment. .
Achieving external stability is one of the main objectives of Australian government economic policy. In order to assess the impact of economic growth on external stability, the current account deficit and the balance of payments are key concepts to be evaluated. This is so due to the fact that economic growth can often result in a rise in the Current Account Deficit (CAD). This is because stronger economic growth is associated with increased consumer and business spending and consequently a higher level of imports leads Australian consumers to spend a larger portion of their disposable income on imported goods and services. The persistent CAD is due to structural problems in the Australian economy. Those problems need to be addressed if we are to overcome their constraint on domestic economic growth, and so that Australia is no longer as vulnerable to external shocks such as periodic falls in the terms of trade.