Nowadays, Australia's population growth is skyrocketing, leading to high inflation rates and potentially forcing the central bank to maintain high interest rates for a long time. Gareth Aird, head of Australian economics at Commonwealth Bank, stated that although the population surge may ultimately suppress wage growth, in the short term, it has increased overall economic demand, and the central bank is attempting to slow down economic heat by tightening monetary policy.
According to British media, Australia added a record 563200 new people in the 12 months to the end of March, even exceeding the expectations of the federal government and central bank. Most of the growth was driven by net overseas migration. One of the biggest increases came from international students who were unable to enter Australia during the pandemic, but are now returning to complete their studies.
Aird believes that if Australia's population continues to grow at its current rate, the central bank may have to raise interest rates to alleviate economic heat. In a statement released on Thursday, he said: "If Australia's population continues to grow at the current rate, it may extend the tightening cycle. In addition, this may mean that interest rates will remain high, delaying the start of the rate reduction cycle. In the short term, we believe that rapid population growth will lead to an increase in inflation rates
Meanwhile, as more people compete for a job, the pressure on wages will decrease. At present, there are some signs that research from the online job website Seek shows that slack in the job market is rapidly developing. Advertising in September showed a decrease of 1.8%, which has decreased by 18.5% in the past year. Advertising in the catering and tourism industries has decreased by nearly 39%.
We have returned to our first federal budget surplus in 15 years, while also reducing inflationary pressures. The budget strategy we developed when we needed it the most was completely correct and perfectly suited to the challenges we face
Australian Finance Minister Jim Chalmers stated that Australia's budget performance ranked 15th out of the 20 largest economies in the world in 2021. Now, it is expected to rank fourth, surpassing countries such as Germany, the United States, and the United Kingdom. Meanwhile, a report from the International Monetary Fund shows that Australia's budget is rapidly improving compared to other countries. The organization found in its latest financial monitoring report that the fiscal deficit of all governments will decrease from 8.7% in 2020 to 1.4% of GDP this year.
Overall, although the population surge has had a positive impact on economic growth, it may also trigger inflation, forcing the central bank to take action to alleviate economic heat. As the Australian government and central bank continue to respond to the various impacts of the population growth surge, their follow-up actions will be the focus of close attention for economists and market investors.