One of the reasons that Australia’s economy has been so strong in recent years has been its continued ability to attract large numbers of migrants to its shores. Large-scale immigration has contributed to fast economic growth, has helped the country set a record run without a recession (25 years) and has sustained housing demand and house price increases.
But it is about to come to a screeching halt, thanks to the coronavirus. Recent government estimates predict that Australia’s population growth is going to drop sharply as temporary residents, tourist, student visa, and temporary working visas numbers all fall.
Long-term migration arrivals are predicted to fall by over 300,000 in the next year and a half: the numbers will fall by 204,000 in the 2020/21 financial year alone. In 2020 population growth overall in Australia will drop to just 0.5 per cent per year, its slowest pace since 1916 (the recent average has been between 1.5 and 2.0 per cent per year). The domestic tourism industry will be badly hit by this, although hopefully Australians will spend more tourist dollars at home instead, while residential housing pressure will ease leading to house prices easing. Rental prices will also grow more slowly as a result.
On the other hand, the lower immigration figures will ease pressure on overstretched infrastructure, particularly in the major cities. Hopefully this will mean that the next 18 months will allow infrastructure works to catch up.
More broadly, if tourism and migration flows decline in the short-to-medium term as a result of this pandemic, countries like Australia (and New Zealand) that rely on migration for population growth and economic growth will be badly affected.
Will this virus not only cause countries to reassess their reliance on global supply chains (and China) but also their reliance on international flows of people? If so, what will replace these flows? And, if so, how will these countries’ economies have to adapt to a world in which ever increasing migration flows can provide GDP growth and asset price increases?