Australia’s economy was the envy of the world. Now lags | Business and Economics

Sydney, Australia – When Racheal Clayton was in primary school in Sydney, Australia, at the height of the 2007-2009 Global Financial Crisis, Australia’s economy was the envy of governments around the world.

Unlike all other advanced economies, Australia emerged from the worst economic downturn since the Great Depression without a recession.

Today, Clayton, 22, navigates the business world instead of the classroom and the economy, where his star shines less brightly on the international stage.

Far from being the envy of the developed world, Australia’s economy is growing at its slowest pace since the early 1990s, barring the COVID-19 pandemic and lagging behind many of its peers.

Australia’s gross domestic product (GDP) grew by just 0.8 percent year-on-year in the first three quarters of 2024, compared with expansions of 3.1 percent and 0.9 percent in the US and Eurozone respectively.

Without immigration-driven population growth, Australia would effectively be in recession, as per capita growth has been negative for seven consecutive quarters.

Like many of his peers, Clayton, who will graduate in 2022, is pessimistic about the country’s economic outlook.

Although she had a full-time job in public relations and lived at home with her parents, she took a part-time gig as a personal trainer to pay for her expenses, which included food, bills, insurance and running costs. a car.

“I’m still very proud to live at home. So it’s not like I have to pay rent, but I still have to pay for other things in life,” Clayton told Al Jazeera.

“If I take a break from my part-time job, I find myself struggling,” he said.

Like many countries, Australia’s prices have risen since COVID-19, with inflation reaching 7.8 percent in December 2022, while wages have stagnated.

While OECD wages have risen by an average of 1.5 per cent since 2019, Australia’s real wages were still 4.8 per cent below pre-pandemic levels last year, according to OECD data.

Clayton said he had no expectation of owning a home because it was difficult to raise a deposit in Australia, one of the most expensive markets in the world, and property was so unaffordable.

“I think (my generation) is focused on finding security in other ways,” he said.

“Just being (financially) secure is no longer an option, so you might as well use your money as much as you can.”

After emerging from recession in 1992, Australia recorded 28 years of uninterrupted economic growth until the world was hit by COVID in 2020.

After bouncing back from the pandemic, the economy has struggled to grow amid high interest rates, falling productivity and slowing demand for Australian exports such as iron ore.

Even if Australia isn’t officially in recession, it feels a little different for those struggling to pay their debts despite having a full-time job and a decent income.

A survey conducted by the Australian Salvation Army before Christmas found a quarter of Australians worried their children would miss out on presents and 12 per cent worried their children would miss out on food.

Much of the financial stress is due to rising mortgage payments due to successive rate hikes by the Reserve Bank of Australia (RBA).

After cutting its benchmark rate to zero in response to the pandemic, the RBA raised its rate to 4.35 percent in a series of moves aimed at taming inflation.

In September, Treasurer Jim Chalmers pointed to the high interest rate environment as the main reason for the slowdown, saying the hikes were “destroying the economy”.

Matt Grudnoff, chief economist at the Australia Institute think tank, said the RBA was playing a “huge role” in the country’s current economic struggles.

“We know that consumer spending is particularly low in Australia at the moment, accounting for more than half of GDP. So you know the economy is going to grow very, very slowly in Australia even though consumers are not spending,” Grudnoff told Al Jazeera.

Grudnoff said the ongoing housing shortage was another contributor to the difficulties faced by many Australians.

Australia is estimated to face a housing shortage of 106,300 by 2027, according to a report by the National Housing Finance and Investment Corporation (NHFIC).

Grudnoff said the shortage, which contributes to rising property prices and rents, has been a problem for years, but has gained national attention since the pandemic.

“I think it’s just because we haven’t had high inflation (before),” Grudnoff said.

“The reality is that until there’s a crisis, it’s often easy to ignore problems,” he said.

With federal elections looming next year, politicians from both major parties have looked to curbing migration to ease pressures on the cost of living.

Facing massive labor shortages since the pandemic, Australia has lifted barriers to international students and skilled migrants in 2022, resulting in a record net migration of 547,200 next year.

Faced with mounting pressure on housing and strained infrastructure, the Labor government has announced it will reduce the intake of permanent migrants to pre-pandemic levels in 2023 and proposed a cap on international student arrivals next year.

While the government estimates net migration will come in at 340,000 for the 2024-2025 financial year, that’s around 200,000 less than in 2023 – which would still be 80,000 more than its target.

Trent Wiltshire, deputy director of the Grattan Institute’s economic prosperity and democracy program, said migration is a boon for the economy and not the cause of its major weaknesses.

“Our per capita living standards have been going backwards recently and have been stagnant for some time. So it was a problem even before COVID, the fact that our economy wasn’t doing as well as it should have been. So we need productivity-enhancing reforms to start raising our living standards,” Wiltshire said.

“Certainly not a cause of weakness,” Wiltshire added, referring to the growth-promoting effect of migration. “So that’s an important distinction.”

In late December, the Labor government released its mid-year economic forecast for the first time since the party came to power in 2022, predicting GDP growth of 1.75 percent and a deficit of $26.9 billion in 2024-25.

Independent economist Nicky Hutley said many of Australia’s problems stemmed from a lack of productivity growth and a “robust and intelligent debate on taxes and revenue”.

Hutley said successive governments’ approach to spending and investment underpins the economy’s current weakness.

While other countries have used the pandemic as an opportunity to invest in future growth drivers such as green energy, Australia has said it is spending money without any sense of long-term vision.

“We spent money on the construction of houses that will be built anyway. We didn’t do that, we didn’t use that revenue wisely and now we’re right back where we started,” Hutley told Al Jazeera. “And finally, Australia is a small, open economy that relies on other countries like China. We need to diversify more.”

“And I think that’s the lesson every country takes after COVID (is) to diversify your import and export markets,” he said.

“But at the same time you have to make sure you’re encouraging investment and have the right frameworks for it.”