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Australian Markets Weekly: weakest population growth in a century as Australia closed its border

Analysis

• Migration-driven population growth has been a defining feature of the Australian economy for several years, where growth has been strong by both past standards and compared with other advanced economies.  International students account for almost half of net overseas migration, while just over half of migrants are from India, China and Nepal (there is significant overlap in that these countries are also important sources of students).
• With Australia’s international border closed, with some exemptions, net overseas migration has largely stopped.  Assuming a broadly unchanged contribution from the natural increase in the population, lower net overseas migration should see Australia’s population growth more than halve to 0.7% in 2020-21, which would be the smallest increase since World War 1.
• Economic recovery has tentatively commenced with state governments beginning to ease some health restrictions, although the shape of the recovery is highly uncertain with weaker population growth likely to be a drag on recovery while the international border remains closed.  The Commonwealth is considering allowing travel between Australia and New Zealand, but more important is whether long-term migration can recommence earlier, particularly for students.

The week ahead – AU NAB business survey, Treasurer’s update, Unemployment data and NZ budget and MPS

• Australia:  On Tuesday, the treasurer reports on the impact of the virus on the economy and the government’s fiscal response to date, where revised budget forecasts may be held over to the June update.   Thursday’s April labour data should be grim.  NAB expects job losses to total 650k (mkt: -550k), with unemployment almost doubling to 9% (mkt: 8%) on its way to a forecast peak of about 12% in June. A risk to our unemployment forecast is that more people have dropped out of the workforce than we expect, but we know 1 million people have lost jobs until early May, so May’s figure is higher still. Wages on Wednesday should rise by 0.4% in Q1 (mkt: 0.5%). The NAB April business survey is due Tuesday, which should provide further insight on the hit to the economy.
• NZ: It’s a massive week with Wednesday’s RBNZ Monetary Policy Statement and Thursday’s Budget. The market is focused on whether there is any change to the statement that the NZ cash rate is expected to remain at 0.25% for the next twelve months. There is also Friday’s PMI.
• CH: Key indicators on Friday will show if the sharp recovery in March is sustained.  US: On Friday, April retail sales and industrial production should show steep falls in line with other US April economic indicators. EZ: Euro area Q1 GDP and March industrial production should show sharp contractions.

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