Falling Migration Is Bad News for the Aussie Economy

Qantas plane

Australia prides itself on being a land of opportunity. Ours is a country renowned for its multiculturalism and acceptance. People the world over look to our shores to make a better life for themselves and their families. They can expect to find work, buy a house, and live the Australian dream.

At least, that’s how things used to be.

An increasingly fewer number of migrants are choosing to settle in Australia. And who could blame them?

Outsiders looking in see a nation with a faltering economy, one increasingly catering exclusively to high skilled labour. They see stubbornly high unemployment, and an emerging housing bubble making housing unaffordable. They see this and question the sense in building a life here.

As a result, Australia’s population growth is slowing, and it’s hurting our economic prospects. On top of slowing migration, birth rates continue to fall, adding to the pressures on the economy. That leaves us facing a future of fewer consumers, fewer taxpayers, and fewer opportunities for growth.

Australia lacks the right kind of jobs to attract migrants

If you’re a low skilled worker, what chance do you have of finding work these days? The hollowed out manufacturing industry provides fewer opportunities for low skilled migrants.

At one time, you could rely on a glut of housing construction to find work. But even the housing boom is tapering off.

Then there’s mining.

For over a decade, the mining industry had plenty of jobs going. It offered low skilled labourers a chance to make a good living, with enviable wage growth. Those days are numbered as global demand drops. But this is merely a reflection of the state of today’s jobs market.

The unemployment rate remains persistently high at over 6%.

If I was looking to settle in a new country, I’d cast more than the odd glance at the US. Their unemployment rate, at 5.3%, looks healthy by comparison.

True, there are questions about the credibility of US jobs data. How many of these jobs are full time? How many are part time and contract work?

US government agencies are renowned for their use of creative accounting when it comes to unemployment figures. But the perception it creates among migrants is lasting. If you want work, you can find it.

As for housing, migrants can forget about that in Australia. Prohibitive house prices in Sydney and Melbourne will put many off coming here. That’s a problem as Sydney and Melbourne are home to the vast majority of jobs.

As a result of all these factors, population growth is slowing markedly. In fact, Australia is growing at its slowest pace in over a decade.

The population grew at 1.4% in 2014, which was down sharply from 1.8% in 2012. This year growth could slow to 1.3%, according to Macquarie Bank. We can expect roughly 162,000 people to resettle in Australia.

That’s far below the Treasury’s expectation for 2015. They expected migration to hit 237,000 in 2015, growing to 250,000 over the next few years.

Australia is by no means alone in this respect. Slowing population growth is an emerging trend across most developed economies.

If anything, Australia actually compares favourably to other OECD rich club member nations.

Take the US for example. Their population grew at 0.7% in 2013. Further north, Canada grew by only 1.2% in the same year.

The US and Canada provide a good measuring stick for Australia. That’s because they compete directly with us for skilled migrants.

From that perspective then, Australia’s net migration may look strong. But this isn’t a popularity contest. What’s at stake is far more important.

The success of Australia’s economy depends on migration levels in excess of its current level. The numbers we’re seeing now are well below what we’ll need to drive growth.

This relationship between net migration and economic growth is key. We need more people to consume; more people to buy houses.

Migrants also broaden the tax base. That’s never a bad thing, as far as the government is concerned.

When population growth slows as it’s now doing, there’s good reason to worry about the economy’s future.

Why an economic recovery remains out of reach

When the Reserve Bank makes its forecasts for economic growth, it does so with population growth in mind. The RBA’s low interest rate policy is actually based around this.

The RBA had predicted growth in the working age population to rise to 1.7%. It was from this platform that they forecast GDP growth to rise to 3%.

But the slowdown in migration proves the RBA was overly optimistic in its estimates.

Why is the working age population important? It’s simple: this is the nation’s consumer base. Without them, businesses don’t sell much of anything.

If the number of working age people is declining, that spells bad news for the economy.

In the year to March, the economy only grew by 2.3%. Around 1.3% of this came from the resource exports. Consumers were responsible for the other 1%.

Both the RBA and government want to ween the economy away from its dependence on mining. Mining exports will only decline in the future, and its share of GDP growth will fall alongside it.

That makes a consumer driven recovery of the utmost importance. But if the working age population is slowing, how will that help the economy? It won’t, and it makes any economic recovery harder to imagine.

There’ll be fewer people buying goods and driving up growth. If people buy less, then businesses spend less. Businesses are already reluctant to invest in projects and workers as is.

And, if economic growth slows, then migration will fall further still. Why would anyone want to come to a country mired with economic problems? They wouldn’t. If migration falls again, so too will growth. And on it goes until the economy bottoms out.

This, of course, is bad news for homeowners too. If you’re a homeowner, it’s only natural for you to want house prices to keep rising.

But slowing population growth only lowers the demand for housing. That, in turn, puts pressure on price growth.

The RBA doesn’t mind this though. Unlike homeowners, they’re trying to keep a lid on house prices. Any slowdown in Sydney’s market will make further rate cuts easier to digest.

That’s the one silver lining for homeowners. Lower rates will result in cheaper borrowing costs, pushing up demand in the process.

Migrants offset Australia’s dangerously low birth rate

If you’re still asking yourself why migrants are important to the economy, I’d ask you to consider Australia’s alarming birth rate.

Australia needs migrants for one simple reason: we don’t produce enough of our own babies. The reasons for this are varied. But it’s enough to know that rising living standards tend to lower birth rates.

With a fertility rate of 1.77, Australia falls well below the replacement level of 2.1. The replacement level is the amount of babies the average woman would need to have to keep the population stable.

We’re not alone in this respect. Most of the developed world is having fewer babies on average. That’s been the developing trend since the 1970s.

It’s for this reason that the US, Canada, and Australia have such progressive immigration policies.

It’s not a matter of feeling generous — it’s necessity. The economies owe much of their recent success to migrants.

Immigration gives these respective economies an edge. There are many countries, particularly in Europe, that aren’t as lucky. Not only are birth rates below replacement levels, but their net migration is almost non-existent.

That’s why it’s important for Australia to continue attracting new migrants. But we need to make it an easy choice for them. That means new jobs and affordable housing. However, that’s easier said than done.

Moreover, the economy’s gearing towards high skilled work also limits the type of migrants we can attract.

And what would happen if the economy, as predicted, enters a recession in the near future? Net migration could slow to below 100,000. That would only speed up economic decline.

The Daily Reckoning’s Greg Canavan, one of Australia’s leading investment analysts, warns the economy is heading in this direction.

In a free report, ‘Australian Recession 2015: Unavoidable’, Greg reveals why economic growth is fall well below the RBA’s 3% forecasts.

Falling mining revenues, and higher trade deficits, are already taking their toll on the economy. Government revenues are down and household debt is up. Alongside slowing population growth, these factors will continue the drag on the economy over the next six months.

But there is hope for anyone who takes the effort to shield themselves from the recession. Greg will talk you through the steps you need to take to protect your portfolio and wealth. To find out how to download the report right now, click here.

Mat Spasic,

Contributor, The Daily Reckoning


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6 Comments on "Falling Migration Is Bad News for the Aussie Economy"

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Dan Evans
Dan Evans
1 year 3 months ago
Hi Mat, I like most of your articles… but not this one. Frankly, I think it is not only nonsensical, your suggestions would actually make things much worse. It is about time someone in Australia (hopefully at the daily reckoning – probably Bill Bonner if he hasn’t already, my guess is he would agree with much of the below) starts pushing back against the downright silly idea that countries should try to improve their economies by increasing the population – whether immigrants or increasing the local birth rate. It is such a simplistic, outdated and obviously unsustainable “solution” that I… Read more »
Jason Hall
Jason Hall
1 year 2 months ago

Brilliant Dan! You sum the article up 100%. Totally illogical!!

1 year 3 months ago

It’s an admission that our economy is insubstantial and rather fragile if we must keep importing people to prop up our skills and GDP. With high unemployment, it’s also an admission that our own educational and training system is underfunded and inadequate. We should be importing knowledge and goods, not importing people.

Jenny Goldie
1 year 3 months ago
The basic flaw in this argument is that it ignores the cost of infrastructure in supplying the needs of each new person to this country, whether from migration or from natural increase. It also ignores the fact that the Productivity Commission found that migration benefits the migrants themselves but not existing Australians. It also ignores the fact that GDP per capita is a better measure of well-being than total GDP. And it ignores the fact that migratiion adds to population growth and thus to environmental pollution, not least carbon dioxide, and thus makes it harder to meet our international obligations… Read more »
1 year 2 months ago
There is a big enough workforce in Australia, record youth unemployment, also if you are 40+ you are deemed past it. The biggest problem with the Australian economy is politicians and in general Australian business can’t see past next week. Also Australian interest rates are still way higher than the rest of the world. Even though the A$ has fallen it is still very high on the PPI. Let’s just say a qualified British person already on the housing ladder sells up and moves to Australia! They would have to settle in Sydney or Melbourne to find work? Well with… Read more »
Jason Hall
Jason Hall
1 year 2 months ago

Sounds like “Plan A” straight out of the Labor Party handbook to me- unsustainable, brainless, single phase thinking, all piled onto a rusty merry-go-round. Not really all that surprised though, as most contributors/writers for Daily Reckoning seem to have an extreme Left-leaning (anti-Right) position. Given that most of these writer also seem to be ‘quite’ intelligent people, one can only surmise that this is a VERY deliberate platform. WHY??? Is there not enough ‘propaganda’ already staining the ‘information highways’????

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