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Australian population boom to continue for decades, to ~40.5M in ~2062

Australia is set on a robust population path to 40.5M by ~2062, outperforming the growth that most other nations will experience over this horizon. Fast migration will ease the ageing of the population, with Australia’s median age by 2050 set to be 5 years younger than the OECD. Through this report we will investigate the long-term economic implications of fast population growth, as well as the equity market and stock specific impacts. By understanding the magnitude and trajectory of Australia's population growth we can better gauge the standards of living we are likely to achieve. It also allows scope to set an investment strategy which can profit as this multi-decade theme shapes Australia.

Long-term economic implications of fast population growth We analyse the implications of fast population growth, especially migration, on 6 key economic variables: 1) inflation; 2) GDP; 3) productivity; 4) housing; 5) Government fiscal position; and 6) savings pool. The precise impact cannot be directly observed, but we summarise a deep-dive of frameworks to assess the implications.

1. Inflation: migration adding ~¼% to ~½% y/y to short-term Consumer Price Index (CPI). The boost to headline CPI from migration could be ~¼% to ~½% y/y in the short-term, most observable in housing. For non-tradables inflation, our models (from 2001 to 2019) estimate a lift in migration of 1% of population raised non-tradables CPI ~0.6%pts y/y, or added ~0.4%pts y/y to headline CPI. However, in the longer-run migration should be disinflationary given it improves the skills and mobility of labour supply.
2. Real GDP: population helps, but likely to slow to ~2.1% trend. The trend of real GDP growth is slowing. The 1990s averaged a booming 3.4% y/y. The 2000s stepped down to 3.0% y/y, & 2010-2019 was only 2.6%. Over the decade to 2030, ÃÛ¶¹ÊÓƵ see only 2.1%, significantly weaker than the Australian Government's 2023 InterGenerational Report (IGR) at ~2½% y/y. We remain relatively positive on population growth ahead, seeing Australia's economy on a stronger path than most comparable overseas economies.
3. Productivity: ÃÛ¶¹ÊÓƵ sees <1% productively growth. Productivity growth has slowed materially in recent years, averaging just ~½% y/y since 2017, and essentially ~flat over the last 3 years. The overall trend for productivity is more driven by a broader range of issues, and therefore solving the slide in Australia's productivity will require policy changes
4. Housing: structural under-supply to get worse (pushing up prices). Housing markets in Australia are experiencing significant price rises as demand driven by population comes up against a limited supply, with building approvals slumping this year to ~150k to ~160k. The limited supply is mostly structural, due to the high cost of land, driven by issues including regulation and tax. That said, no material change in supply/policies is expected in coming years, and our models of housing net supply are moving to indicate under-building is getting worse.
5. Fiscal: much better than overseas, but deficits still ahead. The IGR assesses the impact of population and migration on the Budget only for the Australian Government. However, migration will also continue to materially impact State Government Budgets, given they pay for much of the associated infrastructure. Indeed, migration is estimated to have a large net positive impact on the Budget. But despite this, the outlook for the Budget in the coming decade is still deficits.
6. Savings pool to keep surging. Mandatory superannuation (pensions), combined with strong population growth, supports asset prices, & creates a massive pool of retirement savings, already the 4th largest in the world. IGR projects superannuation balances (excluding SMSFs) will jump from ~116% of GDP in 2022-23, to ~218% by 2062-63; or ~USD 2.7T now, to ~USD 33T in 2062-63.

Our view mainly reflects the actual outcomes of migration have consistently surprised to the upside (apart from COVID); and long-term structural reasons to expect foreigners to continue favouring Australia as a key destination option. These include the resilience of the Australian economy for decades, and the associated level of living standards is among the highest in the world. There is also trust in the Government and institutional arrangements that impact the ‘quality’ of life, including social issues like equality. However, a risk to our relatively positive view on fast migration/population growth are policies that actively slow down migration more sharply ahead. This policy shift could potentially result from a larger and/or more persistent upward impact on inflation, amid pressure on the housing market and productivity, which leads to a longer period of higher interest rates, that eventually weakens the economy materially enough to see a lift in the unemployment rate.