Brexit just made Australia look a whole lot better to Aussies

People wait for a train at Circular Quay near the harbour in Sydney on July 5.
People wait for a train at Circular Quay near the harbour in Sydney on July 5. PHOTO: AFP

SYDNEY (BLOOMBERG) - Australia's cooling population growth may get a Brexit-driven boost as London becomes less attractive to Aussies and those already there get homesick.

Britain's vote to quit the European Union could add as much as 0.5 percentage point to the annual increase in people living Down Under over the next two years, according to Macquarie Bank Ltd.

That's mainly because the Aussie dollar is strengthening, particularly against a weaker pound, curbing the relative attractiveness of the UK for Australian workers; and downgrades to Britain's economic growth forecasts have improved the appeal of Australia's jobs market.

Macquarie chief economist James McIntyre expects population growth of 1.7 per cent in 2017 and 2018, compared with a drop-off to 1.2 per cent forecast before the Brexit vote last month. He is basing that on migration patterns seen near the start of the global financial crisis, and also during Europe's debt upheaval, and reckons any boost is a welcome one.

"Better population growth is an upside for the economy," said Mr McIntyre. "On a relative basis globally, the Australian economy is going to continue to print reasonable growth and, relative to other countries, it's going to look great."

Mr McIntyre's caveat is that his comparable periods were in the midst of Australia's mining investment boom. That episode has now passed.

Nonetheless, strong population growth accounts for a big share of Australia's outperformance relative to developed-world peers. The average annual rate of 1.5 per cent is about 30 basis points faster than Canada's and double the US pace, says Mr McIntyre. Indeed, it's around triple the advanced economy average for the rest of this decade.

But there's a flip-side: Strong population growth can increase labour supply, keeping a lid on pay-packets and inflation even as growth by global standards remains solid.

Indeed, Australia's population gains over the last five years have helped mask a slower underlying rate of expansion. Per capita growth has been very weak and income by the same measure has been falling for most of that time.

Still, a Brexit-based boost would underline the country's fortunate position - particularly when you add in about a 1 per cent gain to GDP from iron ore and natural gas exports. Add to that the 1.5 per cent annual average population growth and the economy has a sound base.

And that's pretty much why Australia would need a major shock to fall into recession - something it's avoided for the past 25 years.

"Really, it's 2.5 per cent before you get out of bed," Mr McIntyre said of Australian GDP growth. "So the conversation we need to have is around how well the economy is going relative to potential. Per capita growth is the Holy Grail of economics - you want it to be growing for living standards to be improving, and at the moment it's deteriorating."