Lower immigration may reflect a fall in the number of people coming to Australia who have a relatively high propensity to participate in the labour force, such as New Zealanders of prime working age. In that case, the implications for the economy’s productive capacity will be larger than if lower immigration was mostly due to fewer international students.
It is not clear whether these two groups would have the same effect on demand: both need to feed, clothe and house themselves, but both have different incomes and different propensities to spend and save. Another source of uncertainty affecting the outlook for supply is productivity growth. That is especially hard to forecast at any time. What signal can we take from recent developments?