Thursday, January 27, 2011

Oh, and we're slowing down the flow of migrants - Access

As hard as the floods will hit the economy, Access Economics expects new migration rules to do worse.

In its quarterly business outlook released this morning the firm excoriates the government for twice cutting Australia's migrant intake, and then changing the rules governing foreign students in a way that accelerated the decline.

"It was a much needed change, but it came just as the international education sector sailed into a perfect storm. Publicity over the treatment of Indian students, the closure of colleges leaving some students high and dry, an increase in visa costs, the change in the ease of getting permanent residency, and the rapid rise of the dollar have all conspired to cut very sharply into foreign student numbers," the report says.

The net migration of 280,000 Australia enjoyed in the previous boom will be closer to 180,000 in the present one.

"Australia had the people to help satisfy the last jobs boom. The boom has returned but the working age population numbers are set to crawl when they should be sprinting."

"Victoria will be hard hit. Its high foreign student numbers had seen it grow fast," said Access director Chris Richardson. "Of course Western Australia will be the biggest victim because it needs workers in the boom and is just not going to get them"...

"Last time we got lots of extra workers from the rest of the world and we had skills shortages, wage growth picked up, inflation went up and the Reserve Bank was jamming on the brakes. The key difference this time is we won't have the people power."

"It is almost too late for the government to reverse things, the dollars have begun flowing in and if you can't get the workers you blow smoke - you put up wages and get high turnover."

Mr Richardson expects the Reserve Bank to being pushing up interest rates again as soon as April, although the floods may make it hold off for a few more months.

It expects near-record crops in 2010-11, with the winter crop perhaps the second or third biggest of all time because of the impact of the rain before the floods.

"Inflows into the Murray Darling Basin is giving the river system a much needed flushing," Mr Richardson's report says. "Many irrigation storages are now full and soil moisture has lifted in a way which should help the 2011-12 crop as well."

The Access forecasts are weaker than those in the Treasury's mid-year review because they were finalised after the December release of the disappointing September quarter national accounts. Prepared before the floods hit Brisbane and Swan Hill the forecasts put economic growth at a below-trend 2.7 per cent this financial year, climbing to 3.5 per cent in 2012-13.

Mr Richardson now expects very weak but still positive growth in the first quarter of this year, a better outlook than Westpac which has growth turning negative in the March quarter.

Before the floods the budget was on track to return to a slight surplus in 2012-13, although "off the back of revenue luck rather than the dint of hard fought spending cuts".

Published in today's SMH and Age

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