Australia’s plan to halve the number of net migrants entering the country may not be enough to curb still-rising inflation, economists say.
Several respondents in The Australian Financial Review’s quarterly economist survey indicated that any efforts to curb migration would help relieve high rental prices and ease pressure on the labor market. However, inflation is still not expected to return to target for at least another 12 months.
The Treasury, in its May budget, forecast net overseas migration to decline sharply to 260,000 by June 2025 after the government introduced efforts to curb migration, such as limiting foreign student numbers.
Several economists believe a decline in net migration would help ease rental pressures. Robert Duong
But not every economist is convinced that it will be enough to stem inflation, which hit a six-month high of 4 percent last month.
“Halving the migration intake will certainly suck significant demand from the economy, but also reduce the economy’s productive capacity,” said Matthew Peter, chief economist at QIC. “The net impact on growth is unambiguously negative, but the impact on inflation is less clear.”
Jo Masters from Barrenjoey also noted that while migration curbs would result in a contraction in per capita spending, population growth at 260,000 was still slightly elevated from pre-pandemic averages. She also expects to see an improvement in spending, helped by a lift in real income growth.
The median forecast of 38 economists in the quarterly survey expects underlying inflation to return to the 2 percent to 3 percent target range by June 2025. Even so, a dozen of the respondents predict it will take even longer, raising the prospects of further tightening from the Reserve Bank this year.
The bond market is pricing in a 30 percent chance of a rate increase at the next RBA board meeting in August and ascribes a 54 percent chance by the end of the year.
‘Few easy wins’
While the majority of economists still believe that the next move from the central bank will be down (albeit not until later this year or in 2025), there is a growing cohort, including Judo’s Warren Hogan and Benjamin Picton at Rabobank, that expect a rate hike to 4.6 percent next month.
The central bank has already lifted interest rates by 4.25 percentage points since 2022 to curb inflation, but a surge in population growth has exacerbated a housing shortage and pushed up rents.
This led the government to introduce stricter visa rules, with international students, who make up half of all net migration numbers, being the most impacted. The government also this week imposed a 125 percent increase in application fees for international students.
Westpac’s chief economist of business banking, Besa Deda, said the government’s 260,000 net migration target, down from last year’s record overseas migration of 547,300, would still be a “strong outcome” that would support consumer spending growth and broader economic activity.
She expects it will be enough to “soften some of the demand and inflationary pressures in the economy, including for rents and other essential services.”
Andrew Boak at Goldman Sachs said “over time it should ease the pressure on rents in the housing market,” while Chris Read at Morgan Stanley said it should lessen the “acute” tightness in the rental market.
Prashant Newnaha at TD Securities said any impact on the economy could become evident towards the end of this year or early 2025. Even so, he cautioned that the tighter restrictions would not be a “silver bullet” for the country’s sticky inflation problem.
“Unless net migration is targeted, particularly towards building and construction, there could be little relief on housing inflation,” Mr. Newnaha said. “Also, as cost of living measures are unwound, inflation is likely to tick back up. There are few easy wins.”
