Last updated: August 7, 2015 9:31 am
A booming economy made Australia a magnet for skilled immigrants over the past decade. But as a once in a generation commodities surge unwinds the country is losing its lustre, causing population growth to slow and economic growth to moderate.
Net overseas migration — the net gain or loss of population through immigration and emigration — was a gain of 184,000 in 2014, down from 216,200 in 2013 and 235,700 in 2012. This trend, together with a slight dip in birth rates, is causing a slowdown in population growth, which last year fell to 1.4 per cent, compared with 1.8 per cent in 2012 and a modern day record of 2.2 per cent in 2008.
“We are seeing weaker net migration as a consequence of the slowing economy,” says Andrew Ticehurst, analyst at Nomura. “This could reduce annual growth rates by between a quarter to a half percentage point of gross domestic product if the trend continues.”
Economic growth averaged more than 3 per cent of gross domestic product during a decade-long resources upturn in Australia as China’s rapacious demand for iron ore, coal and liquefied natural gas led to a surge in mine building. But the end of the construction phase of the resources expansion, a downturn in commodity prices and weak consumer confidence caused growth to moderate to 2.3 per cent of GDP in the year to end March.
Unemployment jumped to 6.3 per cent, according to data out this week, up from 6.1 per cent in June, with 800,000 people out of work for the first time since 1994. Wage growth is at 20-year lows and a depreciating currency provides less incentive for foreign skilled workers to move to Australia, rather than the US or elsewhere.
“There are fewer opportunities for people coming from offshore to work in the resources sector as the construction phase of the resources boom ends,” says James McIntyre, head of economic research at Macquarie. “The most rapid declines in population growth are in resource states Queensland and Western Australia.”
Employment in the mining sector peaked at 271,900 in 2013, triple the level of 2003. Since then the industry has retrenched with Rio Tinto and BHP Billiton — two of Australia’s biggest companies — slashing A$25bn from their combined annual capital expenditure budgets. Employment fell to 256,100 by August 2014 and ANZ Bank predicts a further 50,000-75,000 jobs will go.
The use of foreign labour in the mining and construction sectors is declining with the number of workers on 457 skilled visas falling to 15,570 in March, down from 22,200 in May 2012, according to the Minerals Council of Australia.
The sharp fall in immigration and population growth has caught the attention of the Reserve Bank of Australia, which is attempting to move the economy away from mining-led growth towards growth in other sectors. Last month Glenn Stevens, RBA governor, said policymakers may have to adjust their expectations for potential growth due to the changes.
“There may be few implications for living standards as measured by income per head. But if there are assumptions about absolute growth rates embedded in business or fiscal strategies, or retirement income plans, they would need to be examined,” he said.
On Friday the RBA revised down its forecast for the annual rate of population growth to 1.5 per cent over the next 2.5 years, a 0.25 percentage point reduction. It also cut its estimate for average economic growth to 2-3 per cent in 2016, down from a 2.5-3.5 per cent forecast made in May.
The RBA statement on monetary policy noted lower than expected population growth may have been a positive factor in helping to keep unemployment below its previous forecasts peak of 6.5 per cent in 2016. It added recent data on the Australian economy were generally positive but warned the fall in net migration would reduce the growth in demand for goods and services.
“Our calculations suggest that potential growth has already slowed to around 2.5 per cent from 3 per cent or a bit above and is the lowest since the long economic expansion began in the early 1990s,” says Paul Brennan, economist at Citi.
Lower future growth rates will complicate the government’s promise to return the Australian budget to a surplus from a deficit of 2.5 per cent in 2015-16.
Joe Hockey’s, Australia’s treasurer, assumed in the May budget that economic growth would return to long-term trends, forecasting 3.25 per cent growth in 2016-17, 3.5 per cent in 2017-18, and 3.5 per cent in 2018-19.
Without an increase in labour productivity, structural reform and a rise in business investment achieving this level of economic growth will be challenging, according to Mr Brennan.
Fewer arrivals also raises questions over the sustainability of a housing construction increase that is helping to keep the economy moving while the resources sector slows.
“Slower population growth means less demand for new houses,” says Mr McIntyre. “We really need other sectors to pick up the growth baton but slower population growth does not encourage businesses to invest.”