Economic conditions
The Australian economy is forecast to grow more slowly than previously expected.16 In August 2023, the RBA forecasted gross domestic product (GDP) growth to fall to 0.9% over the year to December 2023 before recovering afterwards, which is well below forecasts at the same time last year.17 Slower economic growth is driven by a significantly weaker household consumption outlook (that is, weaker consumer spending), which is expected to reach a trough of 1.3% over the year to December 2023 – around half of the growth expected by the RBA in the previous year.18 It is also driven by the sharp and unexpected rise in inflation, with global economic circumstances and strong consumer demand being the main drivers. High inflation and rising interest rates are weighing on household disposable income and in turn, household spending.
The Victorian economy is also expected to grow more slowly than previously expected, due to the same factors weighing on the Australian economy. Forecasts from the Victorian Budget 2023/24 in May 2023 show that real gross state product is expected to rise by 2.75% in 2022 to 2023 (lower than the 3.25% expected in May 2022) and 1.5% in 2023 to 2024 (lower than the 2.25% expected in May 2022).
While economic conditions remain favourable, rising interest rates and cost of living pressures have also dented business and consumer confidence in Victoria.19 Further, economic activity, consumer spending and demand for labour are likely to soften throughout 2023.
Overseas migration
Between the June quarter 2020 and September quarter 2021, Victoria experienced net overseas departures of 60,500 people (or an average of 40,300 per year). However, since the staged reopening of international borders on 1 November 2021, overseas migration has rapidly rebounded, boosting labour supply.20 Net overseas migration exceeded the pre-COVID-19 three-year average of 87,100, with 120,500 net overseas migration over the year to the December quarter 2022.21
Net overseas migration is expected to increase in Victoria over the next two financial years, with the Australian Treasury forecasting that 715,000 migrants will arrive in the country over this period.22
Based on industry-level historical patterns, the increase in current and future labour supply due to the rebound in overseas migration and arrivals may be more pronounced in administrative and support services and accommodation and food services, where the proportion of workers who are recent migrants in 2021 are more than double the Victorian average of 5.2% (Figure 3.1).23
Figure 3.1: Proportion of workers in Victoria who are recent migrants by industry (2021)
Occupations that are currently most reliant on recent migrants may experience a higher increase in labour supply. The top five occupations (4-digit ANZSCO) in 2021 that are the most reliant on recent migrants include meat boners, crop farm workers, software and application programmers, commercial cleaners, and chefs.
Metropolitan Melbourne will benefit most from the rebound in overseas entrants as recent arrivals account for a much higher proportion of the labour force in metropolitan Victoria (6.5%) compared with regional Victoria (2.2%). Metropolitan local government areas (LGAs) tend to have higher proportions of the labour force being recent migrants compared with LGAs in regional Victoria.
Recovery from the COVID-19 pandemic
With COVID-19 transitioning from pandemic to endemic, workforce absenteeism is easing though future impacts are still uncertain.24 Both the number of people in Victoria working fewer hours or no hours due to illness or injury or sick leave has declined significantly over the last year to be near or below pre-pandemic levels.25 However, the changes in behaviour and preferences arising from the pandemic remain, with many workplaces adopting a hybrid model of working from home and in the office. This has implications for workforce supply for particular occupations.
There has also been a change in behaviour where more people are changing jobs. This is discussed further in chapter four.
Notes
16 Reserve Bank of Australia (2023) Statement on Monetary Policy February, p. 69; Department of Treasury and Finance (2022) Victorian Pre-Election Budget Update November, p. 3.
17 Reserve Bank of Australia (2023) Statement on Monetary Policy August; Reserve Bank of Australia (2022) Statement on Monetary Policy August.
18 Reserve Bank of Australia (2023) Statement on Monetary Policy August; Reserve Bank of Australia (2022) Statement on Monetary Policy August.
19 National Australia Bank (2023) Monthly Business Survey: June 2023; Westpac-Melbourne Institute (2023) Consumer Sentiment 11 July.
20 The Hon Karen Andrews MP Reopening to tourists and other international travellers to secure our economic recovery joint media release with the Hon Scott Morrison MP, the Hon Greg Hunt MP and the Hon Dan Tehan MP, 7 February 2022.
21 Australian Bureau of Statistics, National, state and territory population, December 2022.
22 Treasury (2023) Budget Strategy and Outlook: budget paper no. 1, 9 May, p. 58.
23 Recent migrants are those from the Australian Bureau of Statistics (ABS) Census 2021 that arrived in Australia since 2017.
24 Department of Health and Aged Care (2022) ATAGI statement on recommendations on a winter booster dose of COVID-19 vaccine, 25 March.
25 Australian Bureau of Statistics, Labour Force, Australia, April 2023, Data Cube EM2b.
Updated