Population growth has been powering Australia's economy since the GFC

Russell Crowe. Photo by Mark Nolan/Getty Images

New Australian population data released today reveals an increase of around 350,000 in the 12 months to September 2016 to a new record 24.22 million.

At 1.5%, the increase was the fastest in percentage terms since mid-2014, with the majority, 55%, driven by immigration.

As this chart shows, Australian population growth was significantly faster in the past decade than the decade before, averaging 1.66% compared to 1.16%.

That acceleration has had some side effects.

There’s a little more congestion and pressure on existing infrastructure, property prices are higher, more residential construction has taken place and, as a result of increased migration, Australia’s rich multicultural background has become even more diverse.

Australia’s population increase has also had another side-effect — it’s helped bolster economic growth.

Yes, while prior financial and regulatory reforms have contributed to Australia’s 25.5 years of uninterrupted economic growth, perhaps the most important factor is increasing population.

When real GDP is measured in volumes, it always helps to have more people, right?

Nothing demonstrates the contribution to our near record-breaking run without a recession than the chart below from UBS.

Source: UBS

It breaks down real GDP by per-capita GDP growth — output per person — to the contribution made by population increase.

Clearly, population growth, shown in blue, made a major contribution, especially in recent years.

“Since the GFC, population growth (averaging 1.6% y/y) contributed two-thirds of GDP growth (averaging 2.4% y/y), double its contribution in the prior 15 years,” UBS’ Australian economics team of George Tharenou, Scott Haslem and Jim Xu wrote in a note earlier today.

“Indeed, GDP per-capita growth has dropped sharply from its pre-GFC trend of around 2.5% y/y, to under 1% y/y now.”

Essentially, without population increase, Australian economic growth would have been significantly slower in the post-GFC era.

And, as highlighted in the chart above, Australia would have experienced a recession during the GFC without a sharp lift in population growth.

From a real GDP perspective, it’s clearly helped.

And that’s expected to continue, says UBS, especially with record numbers of short-term arrivals also coming to Australia at present.

“When combined with population growth those physically in Australia skyrocketed by more than 3% year-on-year, the fastest ever,” it said.

“Overall, this ‘people boom’ underpins our GDP outlook for a modest acceleration to 2.7% year-on-year in both 2017 and 2018.

The bank also says that this may benefit the residential construction sector, allowing for a far shallower decline in activity that what many currently expect.

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