- Article
- Global Research
- General Research Insights
Australia: Embracing the global opportunities … part 1, migration
Australia is a great beneficiary of its global interconnectivity. Free trade, an open capital account and a managed, but healthy, migration programme are key elements of its economic success. As the world gets more geopolitically complex the challenges shift. But the growth opportunities for a resource-rich, advanced, mid-sized economy with a highly skilled workforce are still clearly about managing to continue to benefit from global interconnectivity, despite the challenges. Here, we briefly look at the role of migration.
One only needs to look at the disruption caused by closing the border through the COVID-19 pandemic to get a clear sense of the important role migration plays in Australia’s growth engine.
Migration underpins Australia’s population growth, which is both a source of demand in the economy, driving its expansion, and a source of supply, particularly of labour and skills. At 31% of the total population, Australia’s foreign-born population share ranks among the highest in the developed world, ahead of the UK at 16%, US at 14%, Canada at 23%, and around three times the OECD average.
Australia also has a diverse mix of migrants from different nations, with the largest group coming from Asia. In recent times, the largest inflows have been from India, followed by China, with Asia accounting for 70% of net overseas migration in 2022/23. Around 1.4 million people, or 5.5% of the population in Australia, are of Chinese ancestry according the most recent Census (2021), with around 780k people of Indian ancestry.
The migrant population in Australia, on average, also tends to be more educated, and younger, than the Australian-born population (Census, 2021). This helps to boost the skills base in the economy and help to deal with the aging population challenge.
The migration pathways to Australia are, broadly speaking, family connections, work visas or student visas.
All were disrupted through the pandemic, and all have bounced back since.
A key challenge facing the Australian economy coming out of the pandemic was an ultra-tight labour market and skills shortages, with the unemployment rate reaching a 50-year low in late 2022. A ramp up in migrants mostly on temporary work visas has helped ease some pressures, although the jobs market remains fairly tight.
Education exports, a key industry in Australia, were also heavily disrupted by the pandemic. These too have sprung back since the border has been re-opened, with international student numbers reaching new all-time highs and returning education exports to being the country’s fourth largest export, behind iron ore, coal and gas.
Tourism is important too. Australia has a lot to offer in unique experiences and inbound visitor numbers have rebounded recently, albeit annual short-term arrivals are still only at 83% of their pre-pandemic peak. Outbound tourism also matters for educating and interconnecting Australia population with the world, promoting a global perspective - as well for the great pleasures it delivers.
Australia’s growth relies on cross border movement of people for sustaining it in terms of new demand and new supply of skills.
But managing these cross-border connections is important.
More migrants mean more demand for housing and infrastructure. This is both an opportunity and a challenge. Building more housing and infrastructure is a key part of what is set to continue to underpin growth in Australia. But to do so requires skilled workers, materials, planning and time. The pandemic has heavily disrupted the construction industry, creating near-term bottlenecks. That said, from a macroeconomic perspective it is far better to have high demand - from strong population growth - and be dealing with supply disruptions, than to have supply challenges and a demand-led recession.
Having a well-designed and targeted migration programme is also important to ensure Australia gets the best out of it. A recent review of the migration programme should help in this regard. Care needs to be taken in balancing near-term supply bottleneck issues with longer-term growth objectives. This is particularly apparent in the recent rule adjustments for international student migration.
A recent study by The Economist, based on Gallup World Poll data, points out that tacit demand for skilled workers (graduates) to move to Australia is second highest in the world, just behind demand to move to Canada (The Economist, 17 August 2024). On their estimates, if everyone who wanted to move to Australia could, close to 9 million people would.
This is an opportunity, but a challenge too. Policy reforms can help to best take advantage of these opportunities.
As we have pointed out in recent research, increased interconnectivity with ‘south Asia’ - including India, Indonesia and ASEAN countries - offers Australia growth opportunities. These are the fastest growing large emerging economies on the planet.
At this stage Australia’s goods trade links to these economies are quite small and narrow. Less than 5% of Australia’s goods exports go to India, and nearly 70% of this is coal, while Indonesia takes around 2% of Australia’s goods exports and this is dominated by coal and wheat. Broadening and strengthening these trade linkages is an opportunity for growth and to diversify Australia’s export base. But how?
A key channel could be by building on strong cross-border people connections. Migration and student linkages are already rich - growing these links into trade, financial, technology and skills transfers could be the next step in growth and broadening Australia’s interconnectivity.
Of the three key ways that Australia’s economy is connected to the world, people connections through cross-border movement and migration are clearly important. Trade and financial connections matter a great deal too – more on these next.
