Australia’s economy was the envy of the world. Now it is left behind | Business and Economics

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

Unlike every other major developed economy, Australia emerged from its worst recession since the Great Depression without a recession.

Today, Clayton, 22, navigates a world of work instead of class, and an economy whose star shines the least on the international stage.

Rather than the envy of developed countries, Australia’s economy has been growing at its slowest pace since the early 1990s, despite the COVID-19 pandemic, and is lagging behind many of its peers.

Australia’s gross domestic product (GDP) grew by just 0.8 percent year-on-year through the first quarter of 2024, compared to increases of 3.1 percent and 0.9 percent in the United States and the Eurozone, respectively.

If not for immigration-driven population growth, Australia would be in trouble as per capita growth has been negative for seven consecutive quarters.

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

Although she works full-time in public relations and lives at home with her parents, she has taken on a part-time job as a coach to help cover her expenses, which include food, bills, insurance and running costs. car.

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

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

Like many countries, Australia’s prices are rising in the wake of COVID-19, with inflation rising to 7.8 per cent in December 2022, while wages have stagnated.

While wages across the OECD rose by an average of 1.5 percent from 2019, real wages in Australia were still 4.8 percent below pre-pandemic levels from a year ago, according to OECD data.

Clayton said he is not looking forward to owning a house because it is difficult to build savings and property is not affordable in Australia, which is one of the most expensive markets in the world.

“I think [my generations] they are focused on finding security in other ways,” he said.

“It’s just being [financially] security is like you’re not an option anymore, so you can spend your money anyway.”

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

Since recovering from the pandemic, the economy has struggled to recover amid high interest rates, falling productivity and declining demand for Australian exports such as iron ore.

Even if Australia isn’t doing well in law, it feels a little different than those who are struggling to pay their bills despite having a full-time job and a decent income.

In the run-up to Christmas, a survey by the Salvation Army Australia found that one in four Australians were worried their children would miss out on presents and 12 per cent were worried their children would miss out on food.

Much of the financial crisis was caused by high mortgage payments caused by successive interest rate hikes by the Reserve Bank of Australia (RBA).

After lowering the benchmark rate to zero in response to the pandemic, the RBA raised the rate to 4.35 percent in a series of measures aimed at reducing inflation.

In September, Treasurer Jim Chalmers pointed to high interest rates as a major cause of inflation, saying the hike was “destroying the economy”.

Matt Grudnoff, senior economist at the Australia Institute, said the RBA played a “huge role” in the country’s current economic struggles.

“We know that consumer spending is very low in Australia right now, and that makes up more than half of GDP. And then you know, when consumers in Australia aren’t spending, the economy is going to grow very slowly,” Grudnoff told Al Jazeera.

Grudnoff said the ongoing housing shortage is another factor contributing to the hardships many Australians face.

Australia is estimated to face a shortage of 106,300 dwellings 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 drawn national attention after the epidemic.

“I think it’s because we didn’t have a lot of money [before],” Grudnoff said.

“The truth is that until you have a problem, it’s often easier to ignore problems,” he added.

As federal elections approach next year, politicians from both major parties are looking to reduce immigration as a way to ease cost-of-living pressures.

Faced with severe labor shortages in the wake of the pandemic, Australia eased its restrictions on international students and skilled migrants in 2022, leading to record-breaking immigration of 547,200 arrivals the following year.

Faced with increasing pressure on housing and infrastructure, the Labor government announced in 2023 that it would reduce the number of permanent migrants to pre-pandemic levels and the following year proposed a ban on foreign students.

While the government estimates total migration for the 2024-2025 financial year will reach 340,000 – about 200,000 less than in 2023 – that will still be 80,000 more than its target.

Trent Wiltshire, deputy director of the program on economic prosperity and democracy at the Grattan Institute, said that immigration has been a boon to the economy and not the cause of its weakness.

“Our standard of living per capita has been declining recently and has been stagnant for a while now. So it was a pre-COVID problem again, the fact that our economy wasn’t working as well as it should. “So we need productivity-enhancing changes to start raising our standard of living,” said Wiltshire.

“It’s not necessarily a cause of weakness,” added Wiltshire, referring to the impact of migration on stimulating growth. “So that’s an important distinction to make.”

In late December, the Labor government released its mid-year economic outlook, forecasting GDP growth of 1.75 per cent and a deficit of $26.9bn in 2024-25, the first since the party came to power in 2022.

Nicki Hutley, an independent economist, said many of Australia’s problems stemmed from a lack of productivity growth and a “robust and intelligent discussion about taxes and revenue”.

Hutley said successive governments’ spending and investment policies laid the foundation for the current economic weakness.

While other countries have used the pandemic as an opportunity to invest in future growth developments such as green energy, Australia has spent money without a long-term vision, he said.

“We spent money building houses that would have been built anyway. We didn’t do it, we didn’t spend that money wisely, and now we’re 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 more diversity. “

“And I think that’s the lesson that all countries have taken after the COVID, [which] it’s the diversity of what you buy from other countries and foreign markets,” he added.

“But also that you need to make sure that you encourage investment and that you have the right structures to do that.”