Australia's slowing population growth revives business concerns about skilled labour shortages
PKF's latest annual Business & Population Monitor finds that Australia's population growth peaks amid an increasing need for workers as the economy picks up speed.
Australia's population growth is slowing fast at a time when the need for workers is galloping. Yet the rate at which labour supply will expand is set to tumble amid falling migrant numbers and a pick-up in the pace of retirement among baby boomers, once again raising questions about the likely future impact on Australian businesses.
This is one of the key findings to emerge from PKF Chartered Accountants & Business Advisers' third annual Business & Population Monitor, which looks at the impact of Australian demographic changes on businesses.
PKF's National Director, Enterprise Advisers, Matthew Field, said "The likely implication is that workers will become harder to find, putting pressure on wages, inflation and eventually interest rates, and smaller businesses may struggle to compete for workers with the larger employers."
According to the PKF Business & Population Monitor, not only is the coming downswing in population growth large, it is larger still for the working age population, given that many baby boomers will drop out of the workforce in the next few years, marking the start of a trend that could last for a generation.
"The imminent downswing in demographic destiny is instead the result of deliberate policy – such as reforms of the linkages between student numbers and migrant numbers," Mr Field said.
Mr Field said that despite indications the Australian economy was spared much of the impact of the global financial crisis, and that the economy was well on the road to recovery, small business confidence fell across 2010. "This decline is likely to be explained by rising interest rates and by the prevalence of small businesses in the retail and home building sectors," Mr Field said.
"Unfortunately for the retail sector higher interest rates, the surging dollar and the differential tax treatment of imported internet purchases means retail figures are unlikely to show any great improvement in the short term," he said.
The PKF report found that new housing construction starts had finally seen a significant pick-up, ending a sustained period of declining building that stretched back to 2002. However, in addition to rising interest rates, slowing population growth has dampened the outlook for construction, and a recent fall in building approvals would suggest that the pace of new housing starts will decrease in coming months.
As expected, the fall in business confidence has damaged growth in business investment, demonstrating that, particularly in the resource states, there is a critical need for a large bounce back in order for economic growth to continue in the coming year.
According to figures in PKF's Business & Population Monitor, while Australia is currently undergoing a second round of the commodity boom that drove the Australian economy strongly through 2007-2008, the supply of workers to feed that demand is in question. Apart from the drop in the population growth, the Australian participation rate is currently at its highest level ever. Mr Field said that of particular concern is that the boom is centred on the export potential of mineral resources in Queensland, Western Australia and the Northern Territory – the three regions which are also experiencing the sharpest drop in population growth in the past year. "That suggests this trend is having the largest impact precisely on the areas that need workers the most – putting at risk the ability of those states to find the required level of workers, with implications for wage inflation across the country," he said. "The concern for SMEs is that the high rates imply a scarcity of available labour for any expansion – almost everybody who would like to work is already in the labour market – and the imminent retirement of the babyboom generation will place further constraints on labour supply," he said.
"The combination of official cutbacks to immigration, the slowing down of natural population growth, as well as the coming retirement of baby boomers means that just as the demand for workers is rising rapidly, the potential new supply for them is decelerating fast. That mix will pose most challenges for SMEs, particularly those SMEs in the resource-rich states, where worker demand is strongest," Mr Field said.
New South Wales: PKF's Business & Population Monitor found that while population growth in New South Wales had declined since mid-2009, the decline had been less dramatic than in a number of other states. This result is somewhat surprising, given that New South Wales remains the key point of entry of migrants into Australia. In 2008, NSW's population growth rate was only three-quarters of that seen nationally, but now NSW is up to five-sixths of the national rate. NSW also saw a significant reversal in its population outflow to other states. While more people leave NSW to move to other states than move in the opposite direction, the net loss halved in the past year and is currently at its lowest rate since 1985.
The key for the gradual improvements in NSW's relative fortunes has been a significant recovery in its housing sector, which is now growing after falling back since 2005. Retail and business investments spending are the only areas where NSW is losing ground compared to other states.
Victoria: Although Victoria's population increased by around 100,000 people in the past year, it was well below the previous year's increase. Victoria's decline has been driven by falling international migration levels, with a particular problem for the state being its sharp (and ongoing) loss in international student numbers.
Housing starts, housing investment and new motor vehicle registration have all grown relatively strongly thanks to the state's solid economic position. Also, Victoria's recent retail growth was close to its five year average and the fastest rate of growth in retail of any Australian state or territory.
Queensland: Swings in migration levels have been most notable for their impact on Queensland's population growth, whose rate of increase is at a nine-year low. While some initial easing following the global financial crisis (and the compounding woes of the State's tourism sector) was expected, the rebound in the world mining sector and the rising demand for workers in the state has not yet done anything to reverse those declines.
The outperformance on Queensland's population growth versus its Australian equivalent has been halved in the past year alone (in part, largely because as the slowdown has hit, there have been far fewer 'migrants' from the rest of Australia going north).
Looking at Queensland's economy, housing indicators are the only positive to emerge over the last 12 months. Business investment has particularly suffered, along with retail sales, which leaves output growth in the past year below the state's recent average.
Western Australia: Western Australia's population growth stalled fairly dramatically across 2009, but the labour requirements of the renewed mining boom may already be heralding a turnaround in the state's fortunes. While that may sound like some relief for SMEs, many could soon face a return to the scarce labour availability of 2007 and 2008. However, chances are that any recovery in population growth will be lagging that in employment demand, and the risk of skill shortages biting very hard in the next two years is considerable.
WA's boom is starting to fire up once more as a quarter of a trillion dollars in resource and other investment projects try to jostle their way to the front of the queue in a state where one third of businesses are already complaining that labour is 'scarce'. That means the other yawning gap WA has to deal with is that between the intent of businesses to expand capacity versus available capacity for them to achieve that increase.
Housing starts and new motor vehicle registrations are the biggest contributors to growth for the state; however, growth in housing investment is below its long-term average. This indicates that while new houses are being built, little is being spent on renovating existing homes. Business investment has also fallen away significantly after experiencing very high growth rates over the last five years due to the mining booms in the Pilbara and Kalgoorlie regions.
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