Australia's population surge eases: The focus must shift to productivity

Today’s ABS data release re-confirms Australia’s population surge has passed its peak – even though migration will likely take a little longer than expected to return to ‘normal’ levels. In annual terms, lower arrivals and higher departures saw net overseas migration take a step back for the second straight quarter, and the natural increase (births less deaths) remains at its near lowest level on record. All things considered, the national population grew by 2.3% in the year to the March quarter of 2024 – still very strong by historical standards.

Even with a deceleration, net overseas migration continues to play a key role in supporting population growth, accounting for more than 80% of Australia’s total population increase in the year to the March quarter of 2024. The ongoing strength in migration has helped to officially close  Australia’s pandemic population gap.

Chart 1: Total Australian population

Source: ABS National, state and territory population; Deloitte Access Economics Business Outlook December 2019

Leading indicators suggest that net overseas migration has remained strong into 2024. On average since the start of the year, monthly net permanent and long-term arrivals sit at approximately twice the pre-pandemic average. But that is unlikely to last; following two and a half years of uninterrupted gains, the number of temporary visa holders in Australia fell in the June quarter of 2024, with a further leveling off expected as the Government’s Migration Strategy starts to weigh on temporary migration.

The strength of migration has given businesses access to young and (in many cases) skilled workers to fill job vacancies. Indeed, Australia’s working-age population is trending towards 1.2 million people above the level seen before the onset of the pandemic. That is a key reason why employment growth has remained resilient in the face of slowing economic growth. A growing population is being absorbed by the labour market, with the employment to population ratio sitting just a touch off its record peak.

Overall, population growth has been a boon to the Australian economy – helping to fight off a recession as cost-of-living pressures weigh on household spending. But the benefits have not come without challenges. Indeed, over the past two years, migration has often been blamed for causing Australia’s housing and infrastructure shortages. 

It can be easy to forget the root cause of the nation’s housing problem has been a problem for many years – supply is failing to keep up with rising demand. Housing commencements have not kept up with the increase in households, and fall short of addressing the structural undersupply in the market. This situation is made worse by high construction costs, labour shortages, and waves of business insolvencies.

On a related note, elevated population growth is putting continued pressure on transport, utilities, health, and education infrastructure across Australia – all of which rely heavily on public spending. 

Migration has now passed its peak, meaning the key driver of the Australian economy will need to shift away from population growth and towards productivity growth. Current weakness in productivity growth follows a decades-long lack of economic reform that has discouraged the competition and dynamism needed in the private sector, which has become effectively dormant in Australia. As population growth wanes, the productivity agenda will be increasingly critical for Australia’s prosperity.

This newsletter was distributed on 19th September 2024. For any questions/comments on this week's newsletter, please contact our authors:

This blog was co-authored by Hamish Burrell, Senior Economist at Deloitte Access Economics

Click on the links below to read our previous Weekly Economic Briefings:

• Rising disability rates in Australia - Survey of Disability, Ageing and Carers (10 Sept)
  
• Australian economy continues to shrink on a per capita basis (04 Sept)
• Retail Forecasts: Retail recession – the sequel (29 Aug)
• Employment Forecasts – Jobs: growth and stagnation (22 August)