Back to school and work for international students

To say that it’s been a volatile week in global banking is something of an understatement.

Yet, the US Federal Reserve has looked through the banking sector turmoil and continued raising the Fed funds rate at its meeting this week (to 4.75%-5%), concerned about persistent inflation and a rebound in job growth in the US.

Our Reserve Bank will also be weighing up recent data to make a judgement on whether Australia’s economy has slowed sufficiently to get inflation down.

There are plenty of indicators to suggest it has, but there are also some tailwinds for the Australian economy in 2023, with strong population growth key amongst them.

Last week’s ABS population data showed that Australia had recorded its highest level of net migration since before the GFC. In the September 2022 quarter, the national population grew 0.5%, driven significantly by a spike in net migration of 106,000 in the quarter. Over the past year, net overseas migration is up to 304,000 (a near record for annual growth).

The recovery of migration following the pandemic has helped to relieve some pressure from the labour market.  However, the unemployment rate still sits at 3.5%, suggesting many organisations are still struggling to find enough workers. As the most recent population data available from the ABS records the September 2022 quarter, it is possible that net overseas migration has already moved to a record high. One of the key drivers for this sharp population rebound is the return of international students.

Chart 1: Net overseas migration, year-to growth

Source: ABS National, State and Territory Population

Border closures, particularly in China, had delayed the return of many international students to on-campus‑ learning in Australia. TEQSA (Tertiary Education Quality and Standards Agency), the regulator for tertiary education in Australia, made an announcement in October 2022 that international students will need to return to in person learning by the second semester of 2023. This highlights the potential for strong net migration numbers to continue through the remainder of 2023, with chart 2 showing that student visa lodgements from some markets already increased in 2022.

Chart 2: Primary student visa lodgements by year and applicant country of origin

Source: Department of Home Affairs

There are many key factors impacting the return of students from different countries;

• Students planning to return to Australia from China may have had their plans brought forward, after an unexpected edict from the Chinese government instructed students enrolled in overseas institutions to return in person classes for the coming semester. This announcement was followed up with a series of exceptions, leaving some uncertainty as to the true impact of this policy. Regardless, in December 2022 an estimated 39% of Chinese international students were based overseas, a majority of whom are expected to return to Australia by the start of semester 2, 2023.
• Indian students have been much faster to return to Australia following the reopening of the border. In 2023 there are likely far fewer Indian students returning as many came back to Australia already in 2022. Visa applications from Indian students grew by 24,145 from 2021 to 2022.
• The temporary relaxation of working restrictions for student visa holders in 2022, and some recent permanent changes have attracted many students from lower income nations. Visa applications from Nepalese students grew 149% from 2021 to 2022, and are 60% above their levels in 2019. These students are attracted to Australia by the combination of education and access to the high wages of the Australian labour market.

The continued recovery of international student numbers provides a tailwind for Australia’s overall population and income growth in 2023, providing some offset to the demand crunch coming via the Reserve Bank. On top of this, healthy numbers of international students have started to help ease labour shortages, particularly in industries like hospitality and retail. 

This blog was co-authored by Chris Bates, a Graduate in the Deloitte Access Economics team.