Australia, once celebrated as a global economic success story, is now grappling with sluggish growth, cost-of-living pressures, and declining productivity.
During the 2007-2009 Global Financial Crisis, Australia stood out as a beacon of economic resilience. While other major economies fell into recession, Australia managed to weather the storm, avoiding an economic downturn entirely. But today, the nation finds itself struggling to keep pace with its peers.
Slowing Growth
Australia’s GDP grew by a mere 0.8 percent year-on-year in the first three quarters of 2024, lagging behind the United States (3.1 percent) and the Eurozone (0.9 percent). Without immigration-driven population growth, the economy would technically be in recession, with per capita growth negative for seven consecutive quarters.
This stark contrast to past performance has left many Australians, like 22-year-old Racheal Clayton, feeling pessimistic about the future. Despite holding a full-time job in public relations and living rent-free with her parents, Clayton has taken on a part-time role as a personal trainer to meet her expenses.
“I’m fortunate to live at home, but I still struggle to cover my bills,” Clayton said.
Stagnant Wages and Rising Costs
Inflation surged to 7.8 percent in December 2022, while real wages have stagnated. According to OECD data, real wages in Australia were 4.8 percent below pre-pandemic levels in 2023, despite rising across the OECD by an average of 1.5 percent since 2019.
Clayton, like many young Australians, has little hope of affording a home in one of the world’s most expensive property markets. “For my generation, financial security feels out of reach. We’re just trying to make the most of what we have,” she said.
Challenges in Productivity and Investment
Australia’s economic challenges stem from several factors: higher interest rates, sluggish productivity, and declining demand for key exports like iron ore. Successive interest rate hikes by the Reserve Bank of Australia (RBA) have pushed the benchmark rate to 4.35 percent, straining households and businesses.
Matt Grudnoff, a senior economist at the Australia Institute, believes these hikes have significantly dampened consumer spending, which makes up more than half of GDP. “When consumers aren’t spending, the economy slows dramatically,” he said.
The housing supply crisis has further exacerbated the situation. A report from the National Housing Finance and Investment Corporation predicts a shortfall of 106,300 dwellings by 2027, fueling skyrocketing property prices and rents.
Missed Opportunities
Independent economist Nicki Hutley argues that Australia’s lack of productivity growth and poor investment decisions have compounded its current woes. While other nations used the pandemic as a springboard to invest in green energy and other growth drivers, Australia’s spending lacked long-term vision.
“We spent on projects like housing that would have happened anyway. Now we’re back to square one,” Hutley said.
She also emphasized the need for economic diversification. Australia’s heavy reliance on countries like China for exports leaves it vulnerable to global disruptions. “Every country learned from COVID the importance of diversifying trade and investments. Australia needs to catch up,” she said.
A Path Forward
Experts agree that Australia must adopt a more forward-thinking approach, focusing on boosting productivity, fostering innovation, and diversifying its economy. Without these changes, the country risks falling further behind in an increasingly competitive global landscape.