Australia clocked 24 million people in the March quarter: CBA's Gareth Aird

GUEST OBSERVER

Australia’s population is estimated to have clocked 24 million during the March quarter.

The annual growth rate has been tracking around 1.4 percent for the past six quarters. It is quite a bit lower than the pre-GFC boom years when population growth was running around 2.0 percent pa. But it remains high by OECD standards and is considered to be a strong pace.

Robust population growth means the economy needs to be expanding at a faster rate
than otherwise to achieve full employment. That of course means that the economy has
the capacity to expand at a faster rate too.

The slowdown in Australia’s population growth
rate is a contributing factor to why most estimates of trend growth for the economy have
been lowered in recent years – both Treasury and the RBA have lowered their estimates of
trend growth to be in 2 3⁄4 to 3 percent range.

In the short run, however, the economy can expand 
above that pace because; (i) the unemployment rate is above the non-accelerating inflation 
rate of unemployment (NAIRU) and can move lower; and (ii) productivity in the resources
sector will continue to lift as production comes on stream. 

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The major driver behind Australia’s population growth continues to be net overseas migration (NOM). However, its contribution to growth has come down over the past few years. Both sides of federal politics favour high levels of immigration to partially offset some of the effects from the ageing of the population. It also allows the economy to grow at a faster rate than would otherwise be the case which boosts aggregate demand. And it has significantly boosted demand for housing which flows through to higher prices. 

The ‘grey army’ – those aged 65 and over – has continued to grow as a share of
Australia’s population. The growth of this age cohort underpins the structural decline in labour force participation. The ageing of the population has increased the dependency ratio (the age-to-population ratio of those typically not in the labour force) which underpins the need for fiscal reform, particularly tax policy. 

The detail

Australia’s population is estimated to have risen by 328k in QI (+0.4 percent). The lift takes the population to 24.1 million as at March 2016. NOM was 181k in the year to March 2016,
 up from 177k in the year to March 2015. But well down from the peak of 315k in 2008. 

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Population growth is well above the national rate in Victoria. This underpins very strong employment growth in the Garden State, robust residential construction and strong State Final Demand (SFD). It does little for per capita SFD growth, however. The decline in mining investment and associated downturn in mining-related employment has contributed to a sharp slowdown in WA’s population growth rate. 

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Gareth Aird is economist at Commonwealth Bank and can be contacted here.