b'APRIL 2021 APRIL 20213. The role of migration in future economic growthGDP GROWTH DECOMPOSITIONUsing the Solow Growth Accounting Framework, we are able to decompose the contribution to GDP growth3.1 Impact of lower migration on the economys3.1.1Calibrating the impact of lost migrationby the factors of production, namelylabour, capital and productivity improvements, which are split intocapacity Given the revision to the population, it follows that the improvements in labour productivity (human capital) and more general increases in the economys capacityThe forced halt to overseas migration has been oneeconomys productive potential will be smaller and e.g. enhancements in the broadband network that facilitate working from home. This growth accountingof the most tangible consequences of COVID-19. Theolder, given the age composition of the local population framework can be expressed mathematically as follows, where growth in GDP is broken into the contributionimmediate impact of this has been felt by institutionsrelative to migrants 7 . By applying an average historical from the factors of production: and businesses exposed to international students, andproportion of working age Net Overseas Migration to g gdp= (productivity increase + 0.3 * g human capital ) + 0.35 * g capital+ 0.65 * g labour given the broader restrictions on arrivals from overseas,the total, we estimate the downward revision to the international tourists. More than 12,000 jobs havepopulation from lower migration will lead to a reduction g denotes the growth rate of each factor of production, and the weights represent the long run contribution tobeen lost (around 5% of the workforce) 5in the higherof over 822,000 in the working age population by FY24, GDP growth from increases in the capital stock (investment) and the supply of labour. education sector, and the negative spillovers to otherrelative to pre-COVID. Making use of this framework we can take the analysis further by delineating the labour supply componentparts of the economy are already materialising. StudentUsing the same GDP growth composition we applied into Net Overseas Migration vs. domestic supply and use this to estimate the direct contribution of Netrental property landlords have seen sharp falls inin Section 2, we estimate that the smaller working age Overseas Migration (via the labour supply channel) to GDP growth. rents, with inner city Sydney and Melbourne mostpopulation will reduce Australias economic capacity exposed; rents for apartments in these areas have(GDP) by 4% - in FY25 this will be equivalent to A$80bn. fallen by well over 20% over the last twelve months.It is also worth noting that these estimates likely Retailers, hospitality venues and other services in thesedownplay the full impact of the fall in migration on areas have also seen sharp falls in revenue, and thereeconomic growth, as they do not account for the loss of have been further spillovers; a number of constructionproductivity from skilled migration outlined in Section projects in the sector have been delayed (and in some3.3.1; in effective, they are a conservative estimate of the cases abandoned).long run economic impact of the COVID-19 pandemic. Beyond the loss of international students, the impact of lower migration will become increasingly apparentFig 12. GDP projections: Pre-COVID vs. Post-COVID as the economy moves through the recovery phase(FY10-50) and transitions back to its productive potential. Indeed, the permanent loss to the stock of migrants that is$M (FY 18 terms) Forecastanticipated by the Treasury and other forecasters is4,000,0003,500,000the overwhelming driver of the permanent negative3,000,000impact of COVID-19 on Australias economy.2,500,000Under the governments trajectory where Net Overseas2,000,000Migration is negative in FY21 and FY22, and then1,500,0001,000,000gradually recovers to pre-COVID levels by the late- 500,0002020s 6 , the population is estimated to be 1.1 million0smaller by 30 June 20314% lower than their projections FY11 FY13 FY15 FY17 FY19 FY21 FY23 FY25 FY27 FY29 FY31 FY33 FY35 FY37 FY39 FY41 FY43 FY45 FY47 FY49pre-pandemic. Pre-COVID Post-COVIDSource: BIS Oxford Economicsthe permanent loss to the stock of migrants that is anticipated by the Treasury and other forecasters is the overwhelming driver of the permanent negative impact of COVID-19 on Australias economy. 18 195https://www.abc.net.au/news/2020-10-02/university-sector-new-era-as-international-students-reform-hit/12654828 6 https://population.gov.au/docs/population_statement_2020.docx. The Centre for Population are also assuming that there is adecline in fertility in the near term, as people delay the decision to have children as a result of the economic environment. This is then followed by a mini boom, before a continuation of the long term decline in the fertility rate, to a plateau (of 1.62 babies born per women) in the early 2030s.7 As outlined in Section 2, migrants are younger than the local population, on average.'