Australia's Population Slowdown and Economic Impacts

Key points:

Population growth peaked just above 2.5%yr in Q3 2023 due to a surge following the reopening of international borders, driven by the return of students and arrival of approved permanent residents who were delayed by the pandemic.

Similar patterns of population growth surges and corrections have been observed in other countries like Canada, New Zealand, the United Kingdom, and Germany.

While previously expected to finish 2024 around a 2%yr pace, official data for Q3 2023 showed the annual growth rate had already declined to 1.8%. Both Westpac and the RBA are now operating under an assumption of 1.7%yr growth for calendar year 2024.

The reason for the faster-than-expected slowdown is not entirely clear, but potential factors include an apparent slowdown in processing times for some visa classes and increased departures of long-term non-permanent residents.

Working-age population growth initially outpaced total population growth, likely because the catch-up surge was skewed towards young adult students. This gap is closing as the overall population surge unwinds.

Official Labour Force Survey (LFS) estimates of the working-age civilian population may be revised in the future when benchmarked against official population data. Focusing on ratio measures like the employment-to-population ratio, participation rate, and unemployment rate is suggested for better interpretation of near-term labour market developments, as these are more robust to changes in estimated population growth.

Lower population growth implies less pressure on housing markets. The earlier surge in population growth contributed to the rise in rent inflation and a boost to housing prices despite high interest rates. As growth slows, rent inflation is expected to slow, and the impact of lower interest rates on established housing prices might be less than usual.

State-level population growth varies considerably; for example, in the year to Q3 2023, Victoria (2.1%yr), Queensland (2.0%yr), and WA (2.5%yr) had growth rates above the national pace, while NSW lagged (1.4%), partly due to negative net interstate migration.

Demographic variables, although often considered slow-moving, can change quickly, especially in the aftermath of events like the pandemic.

The primary topics covered in the article include:

Population growth (specifically in Australia and its recent downswing)

The Labour market and implications for employment growth

The Housing market, including impacts on demand, rent inflation, and housing prices

Australian economics in general

The Reserve Bank of Australia (RBA) assumptions and forecasts related to population growth

Data from the Australian Bureau of Statistics (ABS), particularly regarding population and labour force estimates

State-level variations in population growth within Australia

The impact of post-pandemic recovery and border re-openings

Comparisons with population trends in other peer economies (Canada, New Zealand, UK, Germany)

Migration trends (students, permanent residents, interstate)