Australia's population growth is slowing at a time when the need for workers is galloping, which is expected to lead to a situation where businesses face a struggle to find suitably qualified workers, according to research from PKF chartered accountants.

Its annual Business and Population Monitor has found that the rate at which labour supply will expand is set to tumble amid falling migrant numbers and a pick up in the pace of retirement among baby boomers, raising questions about the likely future impact on Australian businesses.

'The likely implication is that workers will become harder to find, putting pressure on wages, inflation and eventually interest rates, and smaller businesses may struggle to compete for workers with the larger employers,' said PKF's national director, enterprise advisers, Matthew Field.

According to the PKF report, not only is the coming downswing in population growth large, it is larger still for the working age population, given that many baby boomers will drop out of the workforce in the next few years, marking the start of a trend that could last for a generation.

'The imminent downswing in demographic destiny is instead the result of deliberate policy such as reforms of the linkages between student numbers and migrant numbers,' Field explained.

He pointed out that despite indications the Australian economy was spared much of the impact of the global financial crisis, and that the economy was well on the road to recovery, small business confidence fell across 2010. 'This decline is likely to be explained by rising interest rates and by the prevalence of small businesses in the retail and home building sectors,' he said.

'Unfortunately for the retail sector higher interest rates, the surging dollar and the differential tax treatment of imported internet purchases means retail figures are unlikely to show any great improvement in the short term,' he added.

The PKF report found that new housing construction starts had finally seen a significant pick up, ending a sustained period of declining building that stretched back to 2002. However, in addition to rising interest rates, slowing population growth has dampened the outlook for construction, and a recent fall in building approvals would suggest that the pace of new housing starts will decrease in coming months.

As expected, the fall in business confidence has damaged growth in business investment, demonstrating that, particularly in the resource states, there is a critical need for a large bounce back in order for economic growth to continue in the coming year.

According to figures in the report, while Australia is currently undergoing a second round of the commodity boom that drove the Australian economy strongly through 2007/2008, the supply of workers to feed that demand is in question. Apart from the drop in the population growth, the Australian participation rate is currently at its highest level ever.

Field said that of particular concern is that the boom is centred on the export potential of mineral resources in Queensland, Western Australia and the Northern Territory, the three regions which are also experiencing the sharpest drop in population growth in the past year.

'That suggests this trend is having the largest impact precisely on the areas that need workers the most, putting at risk the ability of those states to find the required level of workers, with implications for wage inflation across the country,' he said.
'The concern for SMEs is that the high rates imply a scarcity of available labour for any expansion, almost everybody who would like to work is already in the labour market, and the imminent retirement of the baby boom generation will place further constraints on labour supply,' Field explained.

'The combination of official cutbacks to immigration, the slowing down of natural population growth, as well as the coming retirement of baby boomers means that just as the demand for workers is rising rapidly, the potential new supply for them is decelerating fast. That mix will pose most challenges for SMEs, particularly those SMEs in the resource rich states, where worker demand is strongest,' Field added.