Spending by international students accounted for more than half of Australia’s economic growth
International student numbers have risen sharply since the Australian border reopened in February 2022 after COVID-19 pandemic closures, though the pace of visa approvals has slowed recently as the Albanese government tightens the screws on foreign arrivals.
Almost 650,000 student visa holders were in Australia by last December, up sharply from less than 300,000 in 2021.
Consumption understated
NAB senior economists Brody Viney and Taylor Nugent said about 40 per cent of spending by international students was tuition fees, while the remaining 60 per cent was on the consumption of goods and services in Australia.
If that latter category of spending was classified in the national accounts as consumption rather than as an export, then annual consumption growth would have been 1.1 per cent in December, instead of just 0.1 per cent.
The figures suggest that tepid consumption figures understate the true strength of the domestic economy.
“This paints a much stronger picture of domestic demand for goods and services in Australia and helps to explain why businesses in consumer-facing sectors, such as retail and recreation and personal services, have continued to report high levels of capacity utilisation in the NAB business survey,” Mr Viney and Mr Nugent said.
“This will not be news to the RBA, but it does help reconcile the softness in consumption growth with persistence seen in measures of excess demand, such as capacity utilisation in consumer-facing industries.”
Growth headwind
But international students will add far less to GDP in 2024, as visa approval rates fall back to pre-COVID-19 levels. NAB expects education exports will contribute a modest 0.25 percentage points to GDP growth in 2024, which is forecast to run at a below trend annual rate of just 1.7 per cent.
“However, NAB Economics forecasts a pick-up in household consumption growth through the second half of 2024, to around 1.6 per cent year-on-year, as easing inflation, tax cuts, and a waning drag from interest rate increases supports a pick-up in real disposable incomes,” Mr Viney and Mr Nugent said.
“That should broadly offset the end of the tailwind to growth from international students and means that, for consumer-facing businesses, aggregate consumption-like demand growth may be broadly stable, albeit the demographic composition will shift.”
Goldman Sachs chief economist Andrew Boak said he broadly agreed with NAB’s conclusion that rising household consumption will offset the decline in international student arrivals.
“We might expect a gradual improvement in consumer spending this year alongside rising real incomes as inflation falls, tax cuts, and interest rate reductions – despite slowing population growth,” Mr Boak said.
But HSBC chief economist Paul Bloxham said he expected the pick-up in consumption would only partially offset the decline in population growth caused by the normalisation in student arrivals.
Mr Bloxham predicted annual GDP growth would average just 1.5 per cent over the course of 2024.
“Consumer spending speeds up in the second half of the year. But you still end up with growth in the economy overall this year that’s weaker than it was last year. And that’s primarily about the population growth slowing down,” he said.
Visa refusals spike
The Albanese government has made several moves to tighten access to international student visas, as it tries to address community concern over high rates of migration.
This includes backflipping on an earlier promise to allow international students to stay in Australia for an additional two years after graduation, as well as curtailing visa-hopping by students and weeding out non-genuine students who use the student visa system to access jobs.
The decision has pushed visa refusal rates to an all-time high, with vocational colleges and English-language colleges bearing the brunt of the crackdown.
Students from some countries are being refused visas more than others. Only 64 per cent of students from India had their visas approved, despite a freshly inked free trade agreement. While 91 per cent of Pakistani students had their visas approved last January, the figure this year was 34 per cent.