Why Australia’s Miracle Economy Is Failing
By Bloomberg Originals
Key Concepts:
- Economic growth vs. per capita GDP
- Mining boom and resource dependence
- Population growth and immigration
- Housing crisis and affordability
- Inflation and wage stagnation
- Household debt
- Productivity and its drivers
- Economic reform and diversification
1. Australia's Economic Paradox:
- Australia has avoided recession since the early 1990s (excluding the pandemic period), largely due to its vast natural resources.
- However, while the overall economy has grown, GDP per capita has declined, indicating a recession for the average person.
- Example: Kim Dao, a coffee shop owner, illustrates the struggle to find affordable housing and manage rising ingredient costs.
2. Drivers of Australia's Economic Growth:
- Mining Boom: Fueled by China's economic growth, Australia is a major exporter of coal, iron ore, natural gas, and gold. Mining contributed $280 billion in export revenue between June 2023 and June 2024.
- Population Growth: High levels of international migration (35% growth in the past 20 years) have underpinned economic growth.
3. The Housing Crisis:
- Demand for housing outstrips supply, leading to soaring home prices. Sydney has the second most expensive homes globally, after Hong Kong, relative to income.
- Rental affordability is at its lowest since at least 2008, consuming a significant portion of income.
- The housing shortage is exacerbated by constrained land use and insufficient affordable/social housing.
4. Inflation and Wage Stagnation:
- The "barbecue index" (Bloomberg) shows significant price increases for common food items since 2020.
- Real wages have been negative for over two years, meaning wages haven't kept pace with inflation.
- Household disposable income has fallen below the OECD average since the pandemic.
5. Household Debt:
- Australia's household debt is over 200% of household income, one of the highest globally.
6. Productivity Challenges:
- GDP per hour worked has been flat for the last decade, indicating a "lost decade of productivity growth."
- Australia's productivity growth has fallen behind the US since the pandemic.
- The economy is increasingly reliant on the service sector (e.g., care services), which is less productive than mining or manufacturing.
- Start-up funding per capita is lower than in other countries, hindering innovation.
7. The Need for Economic Reform:
- Australia hasn't had major economic reform since the 1990s.
- Politicians emphasize the need for cost-of-living relief and making the economy more resilient to external shocks.
- The government has introduced a plan to boost green manufacturing and high-tech, but analysts say funding is limited.
- Diversifying the economy and fostering innovation in manufacturing and mining are crucial.
8. Government Initiatives:
- The government has introduced a plan to boost green manufacturing and high-tech.
9. Key Arguments:
- Australia's economic success has been heavily reliant on mining and population growth, but these factors are no longer sufficient to guarantee prosperity.
- The housing crisis, wage stagnation, and declining productivity pose significant challenges to the country's economic future.
- Economic reform, diversification, and investment in innovation are necessary to improve productivity and maintain Australia's economic standing.
10. Conclusion:
Australia's "lucky country" status is under threat due to a combination of factors, including a housing crisis, wage stagnation, declining productivity, and over-reliance on mining. Addressing these challenges through economic reform, diversification, and strategic investment is crucial to ensure the country's continued prosperity.
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