If you’ve ever wondered why Australia is so generous with its student visas, there’s a reason – the country’s mandarins are out to poach our brightest talent.
As your sons and daughters head Down Under for a year out when they leave university, the Australian government is banking on some of them staying.
Immigration by highly-educated young people is one way Australia believes it can wean the country off its long-term dependence on raw materials such as iron ore and bauxite.
In 2016, 43% of Australia’s exports consisted of minerals and fuels – it produces 25% of the world’s iron ore, and 30% of the bauxite used to make aluminium.
Economy in good shape
Demand for raw materials from China and South-East Asia is likely to remain strong, but will decline slightly over the next couple of years, according to February’s monetary policy report from the Reserve Bank of Australia (RBA).
However, it believes the economy is in good shape.
Leaving interest rates unchanged at 1.5%, the RBA forecasts that GDP growth will pick up, averaging just above 3% over the next couple of years.
“The data over the summer have been consistent with this outlook,” says the report. “Business conditions are positive and the outlook for non-mining business investment has improved. Increased public infrastructure investment is also supporting the economy.”
High levels of debt
One cloud on the horizon is household debt. The RBA warns household incomes are growing slowly and debt levels are high – a recent survey by the Australian Bureau of Statistics revealed 29% of households can be classified as over-indebted.
The issue is compounded by low wage growth – wage inflation stood at just 2.0% year on year in the third quarter of 2017, only marginally higher than the all-time low of 1.9% earlier last year.
Market doves suggest wage growth will have to break through the 3% barrier before the RBA acts to quell inflation potential, according to research by Rabobank.
It’s for this reason the Australian Prudential Regulation Authority (APRA) has tightened bank lending guidelines to consumers.
Inflation remains low, however, with the forecast for the consumer price index (CPI) to be “a bit above 2 per cent” in 2018.
The Australian economy is ticking over nicely, then, with no regrets over its historic focus on exploiting the country’s abundant natural resources.
RBA assistant governor Luci Ellis said in a speech last autumn that “around the turn of this century, I remember foreign investors telling me that Australia was an ‘old economy’. We should stop digging things out of the ground, they said, and start building microchip factories.
“Considering the relative price movements of iron ore versus microchips since then, we are better off for not having taken that path.”
She added: “In searching for a replacement for the mining investment boom, too often people forget that it gave way to a mining exports boom. That boom is now happening, and for LNG [liquefied natural gas] it still has a bit longer to run.”
Ellis said resource exports – which account for around half of Australia's export income – would add about a cumulative 1.2 percentage points to GDP over the next two years.
Looking to long term
But Australia is not complacent, and is very much looking to the long term.