The secret to Australia avoiding recession: Mass immigration


Australia is standing firm amid growing calls for immigration curbs, even as the US and Europe succumb to rising populism. It has little choice if it’s to continue a period of record economic expansion.



A flood of arrivals that’s swelled the population by 50 per cent over the past three decades has underned economic growth and allowed a succession of go nments to boast of avoiding recession since 1991. Populists are blaming immigrants for over-burdened infrastructure, soaring housing prices and low wage growth.


Australia’s former Prime Minister Tony Abbott, now on the go nment’s backbench, is among those saying “enough.” He wants to slash the annual allowance to 110,000 migrants from 190,000, a move the go nment says could shrink its coffers by as much as A$5 billion ($3.9 billion) over four years. Anti-multiculturalism senator Pauline Hanson is calling for zero net migration.


Introducing such curbs in Australia, which has one of the fastest-growing populations in the developed world, could derail economic growth that’s already lingering below its 10-year average.


“Australia’s immigration policy has given it an advantage over other developed nations in creating demand, consumption and employment,” said Su-Lin Ong, Royal Bank of Canada’s head of Australian economic and fixed-income strategy. “It’s the challenge for po iticians to rationally, clearly expn why it’s beneficial and important for vers not to be swayed by populist thinking. That’s clearly easier said than done.”


Go nments from the US to the UK to Europe have clamped down on immigration as vers are increasingly drawn to populist parties blaming foreigners for widening social and economic inequality. Australia has taken the opposite route: it welcomed almost 184,000 new arrivals in fiscal 2017.


Reserve Bank of Australia chief Philip Lowe last year said population growth was flattering economic data. Indeed, digging beneath the past quarter century’s unbroken gross domestic product record reveals a somewhat bleaker picture: on a GDP per person basis, the growth in economic output was zero at the end of last year and the weakest since the third quarter of 2016.


An accelerating population makes it less likely the nation will slip into a recession — technically defined as two straight quarters of economic contraction — said Gareth Aird, chief economist at Commonwealth Bank of Australia.


“So if you’ve got strong population growth — whether or not it’s driven by immigration — then it’s harder to go backwards in an output sense. But if you look at the economy on a per capita basis, we’ve had a couple of recessions over that period.”


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Population growth is also weighing on unemployment. Despite the creation of 400,000 new roles in 2017, the jobless rate hovered around 5.5 per cent for most of the previous year. That’s largely because more people are looking for work: the labor force participation rate is near a seven-year high. The RBA is reluctant to lift interest rates from a record low until the jobless rate is nearer 5 per cent — its estimated full employment target.


Australia’s so-called points sy em for assessing pential migrants sees skilled workers ranked by their need, and they must also pass health and character tests. Those becoming citizens must first pass an English-language quiz on the nation’s constitution, history and values. India is the biggest source of skilled migrants, comprising 21 per cent in fiscal 2017, followed by on 15 per cent and the UK with 9 per cent.


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