By Stephen Johnson, economics correspondent for Daily Mail Australia
00:14 20 December 2023, updated 00:18 20 December 2023
Australia’s largest bank says record high immigration rates have depressed wages, fueled inflation and pushed up house prices.
A record 518,100 migrants arrived in Australia last financial year, with international students making up the bulk of this number.
The pace of population growth of 2.4 per cent in the year to June was the fastest since the early 1950s, but the chief executive of the payroll company now predicts a recession in 2024.
Belinda Allen, chief economist at the Commonwealth Bank, noted that wage growth during the cost of living crisis would have been higher had it not been for high rates of immigration swelling the pool of available labour.
“The strong rate of population growth has also added to the labor supply, allowing the high demand for workers to be met over the past year, which has helped wage growth to be relatively contained,” she said.
Ben Thompson, CEO of cloud-based Employment Hero, fears Australia could enter a recession in 2024 as small and medium businesses – also known as SMEs – cut staff to cope with consumers cutting back on spending.
“Our data suggests that the economy will continue to slow as we approach 2024, and we will likely see SMEs scale back their hiring and growth plans in the middle of next year, as the economy will likely enter a mini-recession,” he said. .
Wages rose in the year to September by 4 per cent – the fastest pace since 2009 – but this was below levels of 4.3 per cent reached in late 2008 as the mining boom coincided with the global financial crisis.
Wage growth lags behind inflation meaning workers continue to experience falling real wages – something that has been happening since 2021.
Minutes from the Reserve Bank’s December meeting, released on Tuesday, indicated that wage growth had likely peaked.
He added: “Wage growth at the end of the year was a little stronger than expected, but the latest forecasts indicate that wage growth will peak at around four percent by the end of the year.”
An analysis of 150,000 SMEs by recruitment firm Hero showed wages fell by 0.3 per cent in November, the first fall in six months.
Retail, hospitality and tourism workers suffered a 3.2 per cent quarter-on-quarter decline in working hours, suggesting that consumers are cutting back on their spending in the run-up to Christmas.
The Reserve Bank in December considered raising interest rates by a further 0.25 percentage points, which would have raised the cash rate to 4.6 per cent – the highest level since 2011.
“The case for raising the cash rate by another 25 basis points centered on observations that inflation is expected to remain above target for a long period and that there are risks that this period could be extended,” he said.
Inflation in October remained high at 4.9 percent, well above the Reserve Bank’s target of 2 to 3 percent.
The Reserve Bank of Australia left interest rates unchanged at a 12-year high of 4.35 per cent in December, but meeting minutes revealed it expects inflation to fall to 3 per cent in late 2025, rather than 2.5 per cent.
“Members noted that inflation was increasingly driven by domestic demand,” he added.
“They also noted that core inflation was higher in Australia than in many other countries.
“Furthermore, domestic demand is believed to remain above a level consistent with the inflation target and growth next year could be supported by a rebound in real household disposable income as inflation declines.”
Ms. Allen noted that high immigration rates increase inflationary pressures.
“The economic impact of strong population growth has been a matter of great debate,” she said.
“In the short term, this has led to higher aggregate demand through household consumption.
“It has added to the severe issues in the housing market, causing rents and home prices to rise.”
CoreLogic figures for November showed Sydney’s median house price rose 12.5 per cent since January to $1.397 million, despite the Reserve Bank’s 13 rate hikes in 18 months.
Australia’s national vacancy rate is also very low at 1.1 per cent, with Melbourne’s average weekly house rent rising over the past year by 18.7 per cent to $714, SQM Research data showed.
But the Commonwealth Bank, Australia’s largest domestic bank, now expects the Reserve Bank to cut interest rates in 2024, with Australia’s chief economic officer Gareth Aird declaring the next step is likely to be a cut.
“The RBA board minutes are simple – we think the next step is in,” he said.
“We remain comfortable with our base case for the start of the easing cycle in September 2024.”
The RBA’s next meeting will be in early February, after December quarter inflation data is released in late January.