It’s a confusing time to live in Australia.
On the face of it, we should be having a marvellous time, with many economic indicators looking great.
Unemployment is bouncing around near record lows, so getting a job shouldn’t be too hard and the economy is still growing, although at a slower rate.
However, if you dig underneath those broad statistics there are many reasons why times have never been tougher for many Australians.
Mortgage cliff makes life very tough
One group that have occupied a lot of attention are those who have bought a house in recent years and have faced up to, or are about to, one of the steepest mortgage cliffs in memory.
Coming off those amazing 2% pandemic fixed loans and reverting to home loan rates with a six, seven or even eight in front of them must be incredibly painful, not to mention super difficult, as literally every spare dollar is vacuumed into keeping the bank happy with no real end in sight.
For those who are also effectively trapped in their mortgage and unable to change lenders because of serviceability limits, the feeling of inevitability must be even tougher to deal with.
So far, the indications are that those facing such difficult circumstances are doing a remarkably good job of keeping up their repayments with bad and doubtful debts not rising too dramatically, although the pressures will grow too great for some over time.
Renters doing the hard yards too
Those renting are hardly immune from the pain though, with rents rising at an unprecedented rate and vacancy levels very low as the combination of high immigration, strong demand for entry level accommodation and departing landlords who are struggling to deal with high interest rates.
Still, there are other reasons why those of us who don’t fall into these camps are still feeling the struggle of everyday living that seems to be getting harder by the day.
Rising population adds to GDP but not at individual level
One of those factors is the rise in Australia’s population which swelled by an amazing record of 500,400 in the 2022 calendar year, driven by a record net overseas migration of 387,000.
Such high levels of immigration effectively dilute the benefits of what appear to be rosy or at least positive numbers around economic growth.
They also dilute the ability to get a pay rise, with the ready supply of new labour suppressing wages, which are already falling well behind the real cost of living due to rising prices.
Migrants will keep coming
There is little hope on the horizon on this front, with the Federal Budget projecting that Australia’s population will rise by 2.18 million people over the five-years to 2026-27, putting plenty of pressure on to an already struggling property market at the ownership and rental levels.
This is why what looks like weak but still positive economic growth actually transfers into a per capita recession, as the small overall growth translates into shrinking numbers when applied across more people.
Real wages falling fast
Real wages, which are calculated to adjust for inflation, have actually plummeted back to March 2009 levels.
When you effectively erase 14 years’ worth of wage gains, that really has an impact and also shows why it is so important for inflation to be brought under control so that it doesn’t continue to outpace wage growth.
Having all of those extra people spending and consuming in the economy helps to keep economic growth positive and is a bonus for businesses but at an individual household level many will still be heading backwards as their purchasing power falls.
Add in rapidly rising energy prices which is pushing electricity and gas prices up by around a quarter and the misery being felt in the hip pocket is very real.
GDP still muted despite immigration boost
Despite the buoying effect of strong immigration, economic growth is still fairly anaemic at 0.2% in the March quarter of 2023 as the population grew by 0.4%, leading to a shrinking of per capita GDP of 0.2% in the March quarter.
It is tempting to think this effect of falling economic growth at a personal level might be a temporary effect but with most official and unofficial projections for GDP growth being well below projected immigration rates, it is a problem that pushes well into the future.
That is before the effect of any external changes that could plunge our economy from a shallow level of economic growth into an actual overall recession and an even steeper per capita one.
Inflation might hold some hope
If you are looking for a positive amongst all of this gloom it is probably that the inflation rate is starting to fall so there may be an end in sight to the falling real wage levels and per capita recession.
However, keeping an eye on per capita GDP growth or falls is a meaningful but surprisingly uncommon way of keeping track of where we are heading and making sense of the apparent contradiction between what we instinctively feel in our hip pockets despite the relatively positive figures that track the overall economy.
