Australia’s current tough labor market – and the cooling of property values - are both attracting a lot of attention. But neither can last long.
A significant factor X is the restoration of our national border. When immigration is in full swing, it can increase the value of both stocks and property.
Artificially low unemployment
Two years of COVID-19 have brought tremendous changes to our lives and economies.
The unemployment rate in our country is currently only 4.0% – the lowest that has not been observed since the 1970s.
Moreover, the latest federal budget confidently predicts that by mid-2022, unemployment will fall to 3.75%.
All of this creates positive headlines. And, no doubt, this is great news for job seekers, and can help raise wages.
But the reality is that our unemployment rate has been artificially inflated.
Immigration can change the situation
In two years of closed borders, foreign migration to Australia has collapsed.
Prior to the pandemic, data from the Australian Bureau of Statistics (ABS) show that net migration abroad has remained generally stable over the years and is around 180,000 new arrivals per year.
This influx of people has been crucial to our economic growth. It should be noted that 29.8% of the population – almost one in three people born abroad – to recognize the important role of immigration in Australia.
Our border closure, caused by a pandemic over the past two years, has slowed immigration to a sharp halt.
In 2020/21, the net outflow from Australia was 88,800 people. It was the first loss since 1946 and the second lowest in history. International students fell off a cliff.
That may change.
The federal government’s migration program for 2022-23 allows 160,000 migrants to arrive over the next year. About 110,000 of these jobs are allocated to skilled workers.
Already between late November 2021 and early 2022, we saw 56,000 international students arriving in Australia. In the week of February alone, 7,000 international students returned.
Ahead is a strong year for stocks
As immigration to Australia returns to pre-pandemic levels, the unemployment rate is likely to return to 5%.
As for the real estate market, all these newcomers need somewhere to live. This will stimulate demand for housing.
This is not just good news for homeowners. Stock investors will also benefit.
For the past 10 years, the Australian stock market has been closely linked to property prices. In the early days of the pandemic, we saw a secession, although stocks jumped quickly and housing prices skyrocketed.
CommSec expects the Australian stock market to grow by about 5% in 2022. I believe we can see a doubling of growth.
The real estate market can also expect another year of healthy growth, supported by higher-than-expected promises of immigration and elections.
On the other hand books interest rates will rise. And, as I noted, the unemployment rate is likely to push higher. However, it is difficult to see that this will reduce consumer spending, which could limit economic growth.
What we are really looking at is a return to the level of economic activity in 2019. And I’m sure most of us will agree that this is a good step on the long road back to normal life.
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https://www.moneymag.com.au/investing-has-the-impact-of-immigration-been-overlooked
