How to be exceptional: Australia in the slowing global economy

Abstract

This Analysis finds that Australia is an exception to unfavourable trends said to be evident in other advanced economies. There is no evidence of secular stagnation in the Australian economy — and not much evidence of it in the US economy either. Australia exhibits very few of the ‘headwinds’ to growth Gordon cites for the United States. There is no doubt global output growth is slowing, however, largely because of slowing population growth, ageing of the population, and the inevitable decline in emerging economy productivity growth as they catch up to advanced economies. Even so, Australia can remain strikingly exceptional, underpinned by markedly stronger workforce growth over the next 35 years than is now likely in the United States (or China, Europe or Japan, all of which will have shrinking workforces). Australia cannot control what happens in the rest of the world, but with sensible policies to enhance the value of its human capital Australian living standards can grow a little faster than those of the United States, Europe, or Japan over coming decades. Those sensible policies will, however, become harder to sustain as global competition for skilled migrants increases, as the political cost of measures to increase workforce participation rise, and as bigger disparities in Australian household wealth become increasingly apparent in similarly widening disparities in Australian incomes and life opportunities.