When it comes to Australia’s population, New South Wales are the champions of Origin.
The magnetism of a buoyant economy and the associated economic opportunities it provides is what ultimately drives population movements. NSW is back holding the trophy aloft in this regard. People and businesses gravitate towards the locations where they have the greatest opportunities to deploy their skills and capital. NSW is the winner.
The latest ABS demographic statistics showed the rate of Australia’s population growth slowed to 1.4 per cent in 2014, which was a continuation of the recent trend. The slowdown formed the focus of the post-match analysis of the ABS release in late June – we do have a penchant in Australia for highlighting the negatives in economic updates!
However, looking past the headline result shows a very positive story for NSW, and for Victoria for that matter. Victoria may barrack for a different football code, but we’re all on the same side come Ashes time so I’ll talk about the southern state as well!
The contribution to population growth from net overseas migration (NOM) in NSW actually increased in 2014, and in Victoria NOM provided the lion’s share of the growth last year, albeit by a smaller amount than the previous year.
NSW and Victoria are the two states with the largest tertiary education export industries, so the lower Aussie dollar (more on that later) is obviously proving beneficial.
Education is only one piece of the puzzle. CommSec’s State of the States report ranks NSW as the strongest performing economy in the country. ACI’s own analysis presented in the inaugural Construction Monitor released last month ranks NSW and Victoria as the two strongest state markets for non-residential building and engineering construction. Furthermore, both these states are also currently hosting a substantial volume of new residential building activity – the next HIA/ACI Housing Scorecard will likely rank NSW number one when released later this month.
The out-performance of NSW and Victoria relative to other states and territories has also played a role in driving changes in net interstate migration (NIM) flows. In NSW, there was a significant improvement in the balance of interstate migration in 2014. While the state still recorded a net annual loss in population due to interstate migration (as it has for more than 20 years now), the size of the loss more than halved last year. People knew the Origin trophy was heading back south in 2014! Similarly, the net inflow of interstate migrants to Victoria in 2014 increased by 24.0 per cent compared with the previous year, and this took the level of interstate migration to a record high!
So for the southern state with, or without a ‘bullocking’ focus on rugby league, the population profile is a positive one for future non-residential construction and housing activity. It’s a really good story to come out of the ABS demographic stats.
The ABS update wasn’t all positive and I previously noted that the focus on the release initially lay elsewhere. In terms of the national population profile, there was a marked reduction in population growth driven by NOM.
In terms of overseas migration, there were fewer overseas arrivals to Australia in 2014 than was the case over the 2012 – 2013 period, and there has recently been a modest increase in the number of Australian residents making a permanent move overseas. The gradual deterioration in labour market conditions has caused increased numbers of would-be migrants and Australian residents to more closely assess the pros and cons of opportunities in Australia relative to the recovering economies in the US (and parts of Europe), and also opportunities in Asia.
For overseas migrants, when the dollar was at its peak there was a huge attraction to earning an income denominated in Australian dollars. However, earning Australian dollars progressively lost its luster as the currency depreciated. Throughout late 2013 and early 2014 one Australian dollar was buying between US$1.00 and US$1.05. The Aussie has since declined and has recently been trading in a range between US$0.75 to US$0.80, and has also fallen significantly on a trade-weighted basis. For workers from overseas whom the non-A$ value of their income is important, the fall in the currency would have been seen as a cut in pay.
However, the currency isn’t all bad for migration, as I have previously touched on. On the other side of the ledger, for would-be migrants who are concerned about the purchasing power of their expenditure in Australia in non-$A terms, the depreciating currency makes Australia look increasingly attractive. A good example is families looking to send their children to Australia to study.
There are some interesting things happening to interstate migration patterns which are intertwined with construction cycles. Throughout the mining boom, a period which coincided with a very strong Australian dollar, Western Australia had a huge demand for labour, and attracted an exceptionally large number of overseas workers. The weaker currency and softening labour market have conspired to see this source of growth slow. What has dropped out is a sharp drop in both NOM and NIM for WA, while I have made the reverse story for NSW and Victoria quite clear above.
So, the shifting sands of Australia’s population growth present opportunities as well as challenges if you delve below the surface. The employment market reflects the changing dynamic at play and I’ll have more to say about that component of the story in due course. In the meantime, let’s remember that below the (nearly always negative) headlines is a great deal of promise and opportunity, even with an overall economy growing at a rate well below trend!