Australia’s economy was the envy of the world. Now it’s falling behind.
Australia has recorded an impressive 28 straight years of steady economic growth since 1992 until the 2020 pandemic. Since then citizens of the country are finding it harder to support themselves with the rising inflation. I thought it was interesting to note that Australia has an interesting background in recessions. After the Great Depression, Australia was one of the only major developing economies that experienced a relatively short recession before getting back on their feet in little time, and they did pretty well during the 2008 housing crisis because of their strong banking regulations. Now, they seem to be in a hard position because their economy is growing at its slowest pace since the 90s.
The first three quarters of 2024 the United States experienced an expansion of 3.1 percent, but Australia’s GDP only grew by 0.8 percent. I also thought it was interesting to note that if it wasn't for the immigration-driven population they would actually be in a recession since their per capita growth has been negative for seven straight quarters. Meaning if you factor out the population growth driven by immigration then Australia’s economy is shrinking on a per individual basis. Australia experienced a 7.8 percent peak in inflation and stagnant wages during the pandemic and they are still seeing lingering effects from this today. For many residents, they are finding it hard to build up savings because of this slow growth causing many to find any sort of housing too expensive.
One of the main causes of the slowdown have to do with the high interest rate. During the pandemic the RBA (Reserve Bank of Australia) lowered the benchmark rate to almost zero, and then raised them later to 4.35 percent to try and tame inflation, but many claim it was actually the cause of it. With a federal election next year, both major parties are looking at reducing the migration as a way to ease the cost of living. While it was stated earlier that if it wasn’t for their immigration Australia would be in a recession, that doesn’t necessarily mean that the migration was beneficial for the economy. This influx of individuals put pressure on housing and strained infrastructure which is why many native Australians do not expect to be homeowners under the current economic conditions unless something is done.
4 comments:
This is really interesting. I never knew that Australia was such a powerhouse when it came to dealing with recessions and down turns. I still wonder what those structural decisions will show when it comes to understanding their current situation.
I feel like when the pandemic hit, it not only caused their economy problems but also started to lead to a decrease of immigration, which has helped their economy. Once the pandemic was over they were once again flooded by immigrations and just were not ready to handle such a massive wave of people.
Australia's economic challenges highlight the trade-off between controlling inflation with high interest rates and supporting growth. Immigration has helped avoid a full recession but strains housing and infrastructure. Balancing population growth, productivity, and affordable housing is key to addressing these issues long-term.
I found it interesting how Australia’s population growth through immigration has masked the underlying economic challenges on a per-person basis. The fact that per capita growth has been negative for seven consecutive quarters suggests that while overall GDP is increasing, many individuals are still facing financial difficulties. It raises important questions about whether population growth alone can sustain economic prosperity, especially when issues like housing affordability and stagnant wages remain significant concerns.
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