However, the vaccine rollout in Australia and overseas appears to be slower than expected and questions remain about whether quarantine-free travel will be possible - even for those who have been vaccinated.
"It is important to recognise that, in and of itself, closing the borders would be a large drag on the Australian economy in the long run.”
Australian Department of Health Secretary Brendan Murphy has warned “substantial border restrictions” will remain in place for at least the next year. This suggests the risks are leaning towards borders not reopening until late in the fourth quarter of this year or the first quarter of 2022.
A delayed border reopening will have implications for the external sector as well as actual and potential gross domestic product (GDP) growth.
Potential GDP would be lower
The delayed reopening of international borders will mean an extended period of negligible migration. In 2020’s June quarter, net overseas migration (NOM) was negative (departures exceeded arrivals) for the first time since 1993. The stock of temporary migrants continued to decline through to the fourth quarter.
NOM is a significant driver of Australia’s headline economic growth, accounting for 35 per cent of real GDP growth over the decade to 2018-19. In 2018-19, it accounted for almost half of real GDP growth.
This suggests an extension of restrictions on migration, by itself, would mean lower potential GDP and lower actual GDP growth in the second half of 2021, compared with what would have eventuated if borders had been reopened. This may become more apparent once GDP growth rates become less volatile. But this isolated impact has to be countered with the effects on the external sector, as well as the recent evidence the economic recovery has continued to exceed previous expectations.
Small net positive
The services sector is heavily exposed to border restrictions through tourism and education. As previously mentioned, ANZ Research had assumed borders would reopen in mid-2021, allowing a gradual pick-up in both tourists and international students. If the border reopening is pushed back later though, it would (perhaps counter-intuitively) probably mean a small net positive for the external sector in the short term, relative to what was previously forecast. This reflects the impact of Australians travelling domestically rather than overseas. There is a risk though the short term impact could be negative if education exports fall more quickly than expected due to more students finishing their degrees and returning home and/or fewer new students enrolling in courses in Australia.
It is important to recognise that, in and of itself, closing the borders would be a large drag on the Australian economy in the long run. This is because overall, Australia’s travel services balance is positive. In 2019, for example, it was $A14.1 billion in surplus. However, the situation that evolved under COVID-19 was Australia’s travel services balance surged rather than fell.