Sydney, Australia – During Racheal Clayton’s time in primary school in Sydney, Australia, at the peak of the 2007-2009 Global Financial Crisis, the Australian economy was the subject of admiration for governments worldwide.
Australia was the only major developed economy to avoid recession following the worst economic downturn since the Great Depression.
Now, at 22 years old, Clayton has transitioned from the classroom to the workforce, entering an economy that no longer shines as brightly on the global stage.
Australia’s economy is currently experiencing its slowest growth since the early 1990s, excluding the impact of the COVID-19 pandemic, and is falling behind many other countries.
Compared to the United States and the Eurozone, Australia’s gross domestic product (GDP) grew by only 0.8 percent year-on-year in the first three quarters of 2024.
Without immigration-driven population growth, Australia would actually be in a recession, as per capita growth has been negative for seven consecutive quarters.
Like many of her peers, Clayton, who graduated from university in 2022, is pessimistic about the country’s economic future.
Despite having a full-time job in public relations and living with her parents, Clayton has taken on a part-time job as a personal trainer to cover expenses like food, bills, insurance, and car costs.
She stated, “If I take a little break from my part-time job, I find it challenging.”
After COVID-19, Australia experienced a surge in prices, with inflation reaching 7.8 percent in December 2022 while wages remained stagnant.
While wages across the OECD have increased by an average of 1.5 percent since 2019, Australia’s real wages are still 4.8 percent below pre-pandemic levels as of last year.
Clayton mentioned that she has limited expectations of owning a home due to the difficulty in saving and the unaffordable property market in Australia.
She said, “I believe [my generation] is focused on seeking security in other ways.”
After coming out of a recession in 1992, Australia enjoyed a record 28 years of continuous economic growth until the onset of COVID-19 in 2020.
Despite recovering from the pandemic, the economy has struggled to gain momentum due to higher interest rates, decreasing productivity, and reduced demand for exports like iron ore.
Even though Australia is not officially in a recession, for many struggling to pay bills despite having a full-time job and a decent income, the situation feels similar to being in one.
Before Christmas, a study by the Salvation Army Australia revealed that one in four Australians were worried about their children missing out on presents, and 12 percent were concerned their children would go without food.
The financial strain has been exacerbated by higher mortgage payments resulting from consecutive interest rate hikes by the Reserve Bank of Australia (RBA).
After reducing the benchmark rate to near zero during the pandemic, the RBA raised it to 4.35 percent in a series of moves to control inflation.
In September, Treasurer Jim Chalmers attributed the slowdown to the higher interest rates, stating that the hikes were impacting the economy negatively.
Matt Grudnoff, a senior economist at the Australia Institute think tank, pointed out that the RBA has played a significant role in the country’s economic challenges.
He mentioned, “Consumer spending in Australia is currently low, and since it accounts for more than half of GDP, slow consumer spending results in very sluggish economic growth.”
Grudnoff also highlighted the ongoing housing supply shortage as another factor contributing to financial hardship for many Australians.
Australia is projected to have a shortfall of 106,300 dwellings by 2027, according to a report by the National Housing Finance and Investment Corporation (NHFIC).
Grudnoff noted that this shortage, leading to soaring property prices and rents, has been an ongoing issue that gained national attention post-pandemic.
“Until a crisis arises, problems are often ignored,” Grudnoff added.
With a federal election approaching, both major political parties are considering reducing migration levels to alleviate cost-of-living pressures.
After the pandemic-induced labor shortages, Australia relaxed restrictions for international students and skilled migrants in 2022, resulting in a record net migration of 547,200 arrivals the following year.
Concerned about housing and strained infrastructure, the Labor Party government announced a reduction in permanent migrant intake in 2023 and proposed a cap on international student arrivals the following year.
Even with an estimated net migration of 340,000 for the 2024-2025 financial year, 80,000 more than the target, the government acknowledges migration continues to play a crucial role in economic growth.
Trent Wiltshire, deputy director at the Grattan Institute, emphasized that migration has contributed positively to the economy and is not the cause of underlying weaknesses.
He stressed the need for productivity-enhancing reforms to improve living standards in Australia.
Furthermore, the Labor government’s midyear economic outlook projected GDP growth of 1.75 percent and a $26.9bn deficit in 2024-25.
Independent economist Nicki Hutley attributed Australia’s issues to lack of productivity growth and insufficient discussion on taxes and revenue.
She criticized successive governments for neglecting long-term investments and called for diversification in trade markets and the encouragement of investments to boost the economy.
“We need to use income more wisely and ensure we have frameworks for encouraging investment,” Hutley concluded.
