Australia | May 17 2010
By Chris Shaw
A key finding in BIS Shrapnel's “Building in Australia 2010” report is the group's view population growth in Australia is set to slow considerably in both 2010/11 and 2011/12 as net overseas migration declines from record highs.
BIS Shrapnel senior economist Jason Anderson notes in the two years over 2007/08 and 2008/09 Australian net overseas migration delivered a comparable boost to the population to that seen over the five years to 2005/06.
Anderson estimates Australian population growth equated to 2.1% in 2008/09, but the BIS report suggests this growth will slow to 1.5% in 2010/11 and 1.3% in 2011/12 as net overseas migration falls to 175,000 and 145,000 people respectively.
The forecast fall in migration numbers will reflect a decline in the number of long-term visitors. As Anderson notes, most of the rise in net overseas migration over the past three years has been due to a surge in net long-term visitors rather than permanent migrants.
Two main groups have contributed to this – skilled workers under Temporary Business visas and international tertiary education students. While some of these long-term visitors will aim to become permanent residents, most will not, so Anderson expects a rise in long-term departures over the next three years.
As a 457 visa has a maximum duration of four years, Anderson expects departures will jump at a span of about four years from 2007 and 2008. As well, he notes migration data already show a levelling off in arrival numbers, increasing the likelihood the number of skilled worker visas will flatten out in 2010 before rising again in 2011 and 2012.
Growth in overseas student numbers should slow over the next two years given the higher Australian dollar, so Anderson expects the annual increase in long-term departures will be greater than the increase in long-term arrivals from 2010 to 2012.
With the net inflow of long-term visitors set to make a smaller contribution to population growth, Anderson sees this as feeding through to the broader economy. One impact will be some dampening of household spending growth, while he also expects an alleviation of inflationary pressures that stemmed from strong demand growth for domestic goods.
The Australian economy can handle moderate household spending growth as national income should grow solidly in 2010/11 thanks to higher export incomes on the back of higher commodity prices. This in turn will flow through to higher corporate profits, tax revenues and state government royalties.
But as Anderson notes, the retail sector is Australia's largest employer, so overall employment growth should be moderate as population growth slows down. Given this, BIS expects the unemployment rate will stay above 5.0% in 2010/11.
Under such a scenario, Anderson sees less upward pressure on interest rates in 2011 and 2012, which should support turnover of established properties and demand for new dwellings. BIS is forecasting only two interest rate hikes in 2010/11, putting the standard variable rate at around 7.9% by June 2011. This should enable a sustained increase in dwelling construction, something Anderson suggests is badly needed to address the current housing shortage.
