View the Full Report here

Population surges – don’t extrapolate too far

• Australia’s population growth has surged over the past year. The surprise has been how quickly it has rebounded after borders were re-opened from November 2021. The population increased by 1.9% y/y in Q4 2022, while higher frequency labour force data of the 15 years plus population has increased by 2.7% y/y to May 2023.
• In terms of numbers, this equates to 574k people over the year to May 2023, and Australia has now recovered around 76% of ‘missed population’ that would have occurred according to a pre-pandemic linear trend, or 59% on an exponential trend.
• How long will such rapid population growth last? Using overseas and arrivals data, we find most of the rebound in population growth has been due to the return of foreign students with the level of student visa holders now back to pre-pandemic levels, and visas for temporary work and skilled are also back to pre-pandemic.
• Our conclusion then is that population growth should likely slow noticeably over the rest of 2023, back towards the 1.5% pace that has been sustained on average since 2006. Such a pace of growth would still see around 400k people added to Australia’s population each year, but will be slower than the 574k increase seen y/y to May 2023.
• Other recent trends that caught our attention in the data were:
  • (1) interstate migration is starting to normalise with the net flows out of VIC to other states decelerating, though net flows to QLD and WA remain elevated;
  • (2) the number of births which had picked up during the pandemic has mostly reversed, reinforcing the importance of migration for population growth; and
  • (3) building activity has not kept pace with population growth, at a time when average household size declined as people sought more space. Rental vacancy rates are low and asking rents have risen sharply, and household size has risen.
• Offshore, the major population trend worth highlighting is China’s population in 2022 declined for the first time since the 1960s; so did Japan and South Korea. Looking at population forecasts from the IMF, over the next five years Japan’s population is set to fall by 2.5%, China’s by 0.8%, South Korea by 0.5%, and Italy and Germany by around 0.2%. In contrast, strong growth is forecast to remain for Australia (5.8%), Canada (6.4%), NZ (3.9%), the US (3.4%) and India (4.3%).

Chart 1: Population has surged to prior trend

Chart 2: Recovery in net migration has driven the sharp rise

Chart 3: Students and temporary work visas driving

Chart 4: China’s population went backwards in 2022

Chart 5: Population trends are diverging globally

For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets.  Read our NAB Markets Research disclaimer.