Together with productivity and participation, population is one of the key elements of economic growth.
Together with productivity and participation, population is one of the key elements of economic growth.
This 3Ps framework was developed in 2002 under the leadership of (then) federal treasury secretary Ken Henry and is frequently used in government thinking and outputs.
One of the main ways population growth contributes to economic growth is through consumption. More people generally means greater consumption, more spending at retail stores, supermarkets and cafes and restaurants, more demand for homes to be built, and more spending on services.
This spending is dependent on a number of things, including how much income the population has to spend and whether there’s enough infrastructure support.
The structure of the population also plays a big role and determines what type of goods and services are demanded. If the population is younger then there will be a greater focus on education, child care and housing. If it’s older, then health services, retirement living and aged care will have a greater emphasis.
From 2013, population growth in Western Australia fell substantially, from around 2.5 per cent to 0.6 per cent in 2016. This had a flow-on effect to other parts of the economy, particularly the construction sector, with little demand for new residential dwellings and retail expenditure also tailing off.
Population growth picked up between 2017 and 2019, reaching national trend growth levels of around 1.6 per cent, but it is now expected to halve to only 0.8 per cent in the coming financial year, and will be almost entirely driven by births and deaths. This is well below the rate needed to replace the population (2.1 per cent) and the long-term trend for WA of 1.9 per cent.
There was a small population increase in March 2020 as residents returned from interstate and overseas, but there has been very little movement since. In fact, in December 2020 WA recorded only 680 short-term arrivals, compared to 111,000 the previous year.
And only 10 international students arrived in the state to begin their studies, compared to more than 2,300 the year before. And the days of positive interstate migration are long over. WA now loses more people to other states and territories than it gains. Overseas migration has filled this gap and has been one of the biggest drivers of population growth for WA in recent years. But on latest data, this was almost zero, and is not expected to recover until people can move freely into and out of Australia again.
As a consequence, population growth and mobility will continue to be very low. This has placed immediate pressure on demand for certain services like higher education, tourism reliant on international sectors, and skills needed in sectors that are doing well such as construction and mining.
It may be hard to imagine now given the strength and recovery of sectors like construction and retail, but this activity will start to peter out as stimulus and demand recedes. This is likely to happen towards the first quarter of 2022.
Longer term, low population growth will start to place downward pressure on the economy and these sectors again.
Vaccine rollout and take-up may lead to an easing of mobility constraints, but there are many unknowns here and it will take time. Until then, low population growth will be the Achilles heel of the WA economy. A world-class quarantine system that enables international visitors, students and migrants to arrive in Australia in a safe and measured way is something we should be planning.
• Rebecca Cassells is deputy director, Bankwest Curtin Economics Centre
