Australia’s Migration Growth is Shaping Economic Outcomes

Economists are forecasting that the Australian economy will show weak overall growth in the June quarter, but with a contraction on a per-person basis.

This suggests that migration is propping up the economy, masking the true strain on households. GDP is expected to have grown by 0.2% in the June quarter, or 0.9% over the year, allowing Australia to avoid a technical recession. However, when adjusted for population growth, it marks the sixth consecutive quarter of per capita contraction.

Economist Saul Eslake highlights that the surge in net migration following the pandemic has significantly bolstered these figures. Without this population growth, Australia would have likely faced a prolonged recession. Despite migration’s positive impact on overall GDP, the benefits have been uneven.

The influx of migrants, particularly those who are less skilled, has increased demand more than supply, further straining households. Real household disposable income has fallen sharply, marking the steepest decline since 1983.

Labor market economist Jeff Borland from the University of Melbourne adds that while migration initially helped fill labor market gaps, its impact has lessened over time as the economy adjusted. Migration’s effect on GDP and employment can create a misleading picture, as the boost in aggregate figures may obscure underlying weaknesses.

Economist Nicki Hutley describes migration’s benefits as a "sugar hit," boosting short-term economic activity without fundamentally improving living standards. She, along with Eslake and Borland, emphasizes that although migration has helped Australia avoid recession, it is not a long-term solution to economic challenges such as inflation and unemployment.

The future economic outlook remains uncertain, with policymakers balancing efforts to control inflation against the risks of further economic slowdown. Any potential cuts to migration, while possibly affecting GDP, are unlikely to have a significant impact on broader economic trends. Instead, the focus should be on long-term strategies that ensure sustainable growth and address the structural issues in the economy.