SYDNEY (BLOOMBERG) - As Australia's mining-investment boom winds down, the central bank has been relying on a steady flow of new migrants to boost the economy - a stimulant most developed nations lack.
But the country's appeal is now waning as wages stagnate and its jobless rate climbs above the US level. The population is on track for the slowest growth in nine years - a danger signal for an already faltering economy.
"It's another challenge for policy makers already struggling with a difficult situation," said James McIntyre, head of economic research at Macquarie Group Ltd. in Sydney and a former Treasury official. "On the monetary policy side, it really amps up the pressure."
An expanding population and record-low interest rates are lynchpins for the Reserve Bank of Australia's forecast that growth will pick up to its long-run average of about 3 per cent. Without rising ranks of new workers to boost consumption and buy the growing number of newly constructed houses, the economy's recovery is that much trickier.
Australia's population growth slowed to 1.4 per cent in 2014 - double the average of countries in the Organisation for Economic Cooperation and Development but down from 1.8 per cent two years earlier. The slowdown is at odds with the RBA's May forecast for a 1.7 per cent gain in working-age population this year.
"This suggests the Australian economy will likely fall short of the current growth path expected by policy makers in the near term and thus justifies some further easing," said Tim Toohey, chief economist for Goldman Sachs Group Inc. in Australia.
Consumer confidence dropped 3.2 per cent this month, a Westpac Banking Corp. survey showed Wednesday, as pessimists outnumbered optimists for the 15th time in 17 months.
Australia and the US, which traditionally vie for immigrants, are heading in opposite directions economically. The jobless rate Down Under, currently at 6 per cent, has been higher than the US rate, now at 5.3 per cent, for the past nine months.
"Would you move to a country where you can't get a job?," Mr Toohey said.
Macquarie estimates Australia's population growth could slow to 1.3 per cent this year, the weakest since mid-2006, as net migration cools to 162,000. Treasury projected earlier this year that a net 237,750 people would arrive in 2015, rising to 250,000 in each of the following three years.
The danger of the slowdown in new arrivals is underscored by Australia's first quarter growth data. The economy expanded 2.3 per cent from a year earlier, with 1.3 percentage points of that coming from resource exports, according to McIntyre. That means the rest of the economy produced just 1 percentage point of growth, highlighting the importance of sustaining consumer demand.
Alongside fewer migrants, the natural increase in population also slowed last year to the weakest since 2006.
"Households are choosing to have children only after a period of sustained income growth," Mr Toohey said. Given household income growth is the slowest since the early 1990s, "it is not surprising that the number of births has slowed appreciably."
Fewer workers than expected are also a complication for Australia's budget, as revenue from personal income and consumption taxes is hit. The fiscal deficit is already more than 2 per cent of gross domestic product and compounded by falling iron ore prices.
Treasurer Joe Hockey said Wednesday that tax rates should not be set at levels that drive talented foreigners away.
"Lower taxes provide a great conduit for new investment and entrepreneurship," he said. "Talent will always gravitate towards wherever the reward is greatest."
Then there's housing.
The central bank's 2 per cent cash rate has fueled a surge in property prices in the two biggest cities, Sydney and Melbourne, prompting a building boom as construction companies cash in. Policy makers have hailed the home building boost as a means to ease supply shortfalls and soak up former mine workers.
But Goldman now sees the potential for a property glut as population growth slows. Its revised demographic estimates point to an excess of 75,000 dwellings by 2017 rather than a previously forecast shortfall of 140,000.
The slowdown in population growth is a headache for RBA Governor Glenn Stevens.
"It represents a weakening of one of the key fundamentals the RBA has highlighted as supporting a pickup in non-mining investment," Mr McIntyre said.