The Secret To Australia Avoiding Recession: Mass Immigration

Australia is standing firm amid growing calls for immigration curbs, even as the U.S. and Europe succumb to rising populism. It has little choice if it's to continue a period of record economic expansion.

A flood of arrivals that's swelled the population by 50 percent over the past three decades has underpinned economic growth and allowed a succession of governments to boast of avoiding recession since 1991. Populists are blaming immigrants for over-burdened infrastructure, soaring housing prices and low wage growth.

Australia's former Prime Minister Tony Abbott, now on the government's backbench, is among those saying "enough." He wants to slash the annual allowance to 110,000 migrants from 190,000, a move the government says could shrink its coffers by as much as A$5 billion ($3.9 billion) over four years. Anti-multiculturalism senator Pauline Hanson is calling for zero net migration.

Introducing such curbs in Australia, which has one of the fastest-growing populations in the developed world, could derail economic growth that's already lingering below its 10-year average.

"Australia's immigration policy has given it an advantage over other developed nations in creating demand, consumption and employment," said Su-Lin Ong, Royal Bank of Canada's head of Australian economic and fixed-income strategy. "It's the challenge for politicians to rationally, clearly explain why it's beneficial and important for voters not to be swayed by populist thinking. That's clearly easier said than done."

Governments from the U.S. to the U.K to Europe have clamped down on immigration as voters are increasingly drawn to populist parties blaming foreigners for widening social and economic inequality. Australia has taken the opposite route: it welcomed almost 184,000 new arrivals in fiscal 2017.

Reserve Bank of Australia chief Philip Lowe last year said population growth was flattering economic data. Indeed, digging beneath the past quarter century's unbroken gross domestic product record reveals a somewhat bleaker picture: on a GDP per person basis, the growth in economic output was zero at the end of last year and the weakest since the third quarter of 2016.

An accelerating population makes it less likely the nation will slip into a recession -- technically defined as two straight quarters of economic contraction -- said Gareth Aird, chief economist at Commonwealth Bank of Australia.

"So if you've got strong population growth -- whether or not it's driven by immigration -- then it's harder to go backwards in an output sense. But if you look at the economy on a per capita basis, we've had a couple of recessions over that period."

Population growth is also weighing on unemployment. Despite the creation of 400,000 new roles in 2017, the jobless rate hovered around 5.5 percent for most of the previous year. That's largely because more people are looking for work: the labor force participation rate is near a seven-year high. The RBA is reluctant to lift interest rates from a record low until the jobless rate is nearer 5 percent -- its estimated full employment target.

Australia's so-called points system for assessing potential migrants sees skilled workers ranked by their need, and they must also pass health and character tests. Those becoming citizens must first pass an English-language quiz on the nation's constitution, history and values. India is the biggest source of skilled migrants, comprising 21 percent in fiscal 2017, followed by China on 15 percent and the U.K. with 9 percent.

Before he became U.K. Foreign Minister, Boris Johnson said during the Brexit campaign that his nation should adopt a "genuine Australian-style points system." President Donald Trump's administration has also hailed the process for its stringent vetting of candidates.

But even with such a strict system, local opponents say Australia is allowing in too many migrants. While its 25 million people dwell on a continent that's 50 percent larger than Europe, an arid and dry climate makes most of the land uninhabitable. A government-commissioned report this month said another 11.8 million will arrive in the next 30 years, with the vast majority going to the nation's four largest cities -- Sydney, Melbourne, Brisbane and Perth.

Populist politicians "think this issue is a winner because they've seen it win before," said David Burchell, a political analyst at the University of Western Sydney. "They're looking around the world, such as the U.S. and Europe, and seeing that cutting immigration numbers is a popular narrative."

Just over half of Australians think the total number of migrants coming to Australia each year is either 'about right' or 'too low', according to a Lowy Institute survey published last June. Four in 10 said the number was too high.

For now, Prime Minister Malcolm Turnbull is standing firm on immigration, signaling he won't adjust a policy that added 1.6 percent to the nation's size in fiscal 2017, compared with the developed world average of 0.7 percent in 2016.

Former New South Wales premier Bob Carr, who in 2000 said Sydney was "full," used an Australian Broadcasting Corp. interview on Monday to again call for less immigration, saying it might "encourage Australians to find other ways of driving a contemporary economy."

Demands for a rethink of policy are likely to mount, according to Paul Williams, a political analyst at Brisbane's Griffith University.

"There's more noise around this issue than we've seen in years," he said. "That's coming from fringe politicians now, but there's no doubt a lot of Australians want the major parties to start having a conversation about immigration."