Is the Decline in Immigration Slowing Australia’s Economic Growth?

The Reserve Bank of Australia’s (RBA) quarterly monetary policy report supports the suspicion that the cut in the economy’s potential growth is linked to a slower population growth.

Latest figures show that there was a net inflow of 16,360 long-term or permanent stays against long-term or permanent departures. This figure is lower than the net flow figure for June 2014 (19,400) and significantly lower than the figure for June 2013 (27,180). Annual figures show that the year to June 2015, the net inflow was 292,300, compared with 356,400 in the year to June 2014, and 407,100 in the year to June 2013.

Fluctuations in immigration are regarded to be the major reason for changes in population growth from year to year, while changes in birth and death rates are not regarded to be as important, because they occur more gradually over time. The RBA’s analysis showed much of the slowdown in immigration has been in the age group denoted as “prime working age”, from 25 to 44.

The quarterly statement states that “Lower population growth has important implications for the economy”. The lower growth population is expected to reduce demand for goods and services from what it would otherwise have been, as well as the economy’s capacity to supply them.

GDP growth in Australia from April until June 2015 was lower than expectations at 0.2 per cent and it was the economy’s weakest quarter of growth in two years. Australia has been recession-free for 24 years but this is looking increasingly vulnerable as the slowing growth is already hitting both company profits and employee wages.

These figures will come as a stark warning for a number of nations who are tightening immigration rules, as the perceived short-term pressure on public services, normally outweighs long-term economic impact. With an ageing population, countries will need to rely on a steady flow of working age migrants to support the economy of the future.

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