ASB economists say the current surging inbound migration is unlikely to have the same sort of inflationary impacts previous migration booms have had.
In an Economic Note on migration, ASB senior economist Mark Smith and future me graduate Kathryn Shearing say the current influx of migrants does not look like it is significantly adding to demand pressures.
"Even if net immigration inflows remain strong, we suspect the inflationary impacts are unlikely to be as marked or persistent as past booms," they say, adding that there would therefore be "much less upside risk" to Reserve Bank (RBNZ) Official Cash Rate (OCR) settings.
"There is a reasonable degree of uncertainty over how long the high net immigration inflows hold up. Even if the inflows prove to hold up for longer than we (or the RBNZ) expect it does not necessarily mean that the degree of inflationary pressure in the economy is correspondingly higher."
The economists say there are scant signs to date of an immigration boost to demand, with the NZ economy in recession despite booming net immigration.
"Household spending is not showing signs of a net immigration boost. Recent softness in card spending data confirms that consumer spending is hardly booming. Likewise, the housing market looks to have troughed, but it’s not setting the world on fire despite more people requiring housing in NZ. Dwelling rental inflation, whilst firming, remains reasonably low."
The economists say, however, there are "more conclusive signs" that higher net immigration is boosting productive capacity by "alleviating labour market frictions".
They say they suspect that 5.50% (the current level) could be the peak in the OCR this cycle.
In terms of exactly why the inflationary impacts of immigration are unlikely to be as strong as has been the case in the past, Smith and Shearing say this likely reflects the composition of who is coming in (typically younger) relative to who is leaving (generally older) that could be mitigating the boost to demand, while also supporting the supply of labour.
"With NZ amid a sizeable per capita recession, the vibe this time around seems considerably at odds with past immigration cycles that had turbocharged the housing market and contributed to economic overheating. We will be doing some further work in this area in the coming months and will report key findings."
As for how persistent the recent migration upswing may be, the economists say "this is the $64,000 question".
"Both the Treasury and the RBNZ assume that the recent surge in net immigration is short-lived. Budget 2023 forecasts have [permanent and long term] PLT net inflows peaking at just over 65,000 persons by mid-2023 and easing to below 40,000 persons at the end of the projection period.
The May [RBNZ Monetary Policy Statement] MPS forecasts have working age net immigration cooling from 75,000 persons in the 2022 calendar year to 48,400 persons by the end of 2024 and just under 40,000 persons by the end of 2025. We broadly concur with these views.
"Forecasting net immigration inflows is inherently tricky, but the most likely trajectory is for net PLT inflows to continue to remain historically high over the next few months. The recent run of upward historical revisions to the figures looks likely, but in the absence of a sharp reversal in the coming months (which can’t be ruled out), annual net PLT inflows are likely to peak at well under 100,000 persons by the end of the year.
"We then expect the pace of inflows to subside, as the slowing economy reduces the allure of NZ as a migration destination and the backlog of people wishing to migrate to NZ abates. We also expect PLT departures to strengthen over time as the allure of NZ fades to recent PLT arrivals and they look at other options. We expect annual net PLT immigration to cool to around 40,000 persons in the coming years."
28 Comments
Yeah, nah. Doesn’t matter what measly sums they earned back home, an average wage in this country doesn’t go very far with our cost of living. Heck I earn close to 200k per annum and even I don’t feel like there is much left over for discretionary spend.
The immigration effect has been hugely overhyped.
Forecasting net immigration inflows is inherently tricky, but the most likely trajectory is for net PLT inflows to continue to remain historically high over the next few months
No control, not even a rough plan from the authorities on how many people actually pour in the next few months and what skills they bring.
All we can expect from the government is tweak some policy settings and pray to Almighty businesses to do the right thing instead of line their pockets by exploiting migration channels.
And it was not a case of “a few bad apples” but it was systemic
'Serious gaps' in RSE Scheme enable human rights breaches | HRD New Zealand (hcamag.com)
'Blatant exploitation': Migrant workers packed in freezing, damp rooms for $150 a week | Stuff.co.nz
Advisor, I have a serious issue with these claims because we accommodate 18 RSE workers every year, and I can tell you from experience, that we have to comply with countless government regulations (min size rooms, ventilation, insulation, cooking facilities, min number of toilets per worker, max 2 people per room and many more. Last year we were checked for being up to date with the healthy homes standard!
I also know for a fact that they have to pay these workers the living wage, which is higher than the minimum wage.
So knowing first hand, I really doubt the legitimacy of these articles.
Maybe there are indeed some rare accommodation providers who provide sub standard accomodation, this is of course totally unacceptable. If it is the case, it will be the exception but of course it makes the news, whereas the 95% who provide compliant top accommodation don't get mentioned!
You probably didn't read the articles well enough. These are based on a report and commentary published by the Equal Employment Opportunity Commission of NZ, not some Stuff journalist.
You accommodate 18 and the RSE quota is about ~19k a year. So, your sample size of 0.1% in a single location does not represent the entire RSE population size.
Also, just because there are rules around employee wages does not inherently mean these are being followed. It is like arguing that putting up speed limit signs on roads will ensure full compliance to the driving code.
So, current (transaction) account balances are now about $130 billion and we have about $309 billion in NZ savings / term deposit accounts. Govt is currently taxing about the same as it is spending, and loan repayments are almost exactly equal to new loans. So, no new money is being added into our economy.
However, our current account deficit means that overseas investors are taking about $15 billion per year out. So, if we carry on as we are, we will see domestic bank account balances shrinking by around $15 billion per year.
Now, let's say 100,000 people arrive and start working, earning $50,000 each... that's $5 billion a year in salaries, which ultimately needs to be paid out of our bank accounts. Now, how much of that gets quickly recycled back into local demand? How much gets saved domestically? How much gets spent on imports? How much gets sent abroad? How much does that work boost exports and reduce the flow of $ overseas?
My view is that unless new immigrants bring a tonne of cash with them, or they borrow new money to buy houses or start businesses, then the net impact of their arrival will be to simply speed us more quickly towards a deeper recession.
Any net immigration increase results on upward pressure on everything, just common sense we need more of everything. Rents increase and then its away we go again. You cannot assume everyone arrives with no money and starts working at a below median income job. Immigration is the fastest way to boost the economy, its that simple but of course the roading and infrastructure cannot keep up, look at Auckland its a basket case.
Yes, immigration boosts the velocity of money moving around the economy, as jobs are filled, more work gets done, and people get paid and spend etc. My point though is that a faster moving economy in a country with a persistent current account deficit is unsustainable... unless private sector debt or Govt net spending increases.
I only have reckons, but I don't see how low-wage imported labour will ever increase productivity. We tend to get productivity increases when labour costs increase and companies invest in new ways of doing things. Look at our horticulture industry - most of our practice is prehistoric compared to the more successful Euro countries.
It's actually the opposite; agriculture in Europe is still protected and subsidised, and fairly stale, the growth of agriculture in NZ has out stripped that of Europe for decades, I believe productivity growth for Ag leads most of our other sectors.
Some parts of agriculture you can't fully automate. For those bits, particularly the manual stuff, a migrant worker is typically quite a lot more productive than a local (if one is in fact available). Probably not enough to lift the national productivity average tho.
I've been trying to wrap my head around some of this over the weekend.
Furthermore, what are the recessionary pressures come election time? We have two strategic parties; one which has run a deficit through spending (increasing private and foreign reserves) and one which is wanting less spending with some tax relief.
My main concern is if National get in, will their reduction in government spending add fire to the looming recession and destroy our workforce and asset prices? Or will they be able to balance this with an adequate reductions in tax? I'm concerned we'll be in the center of a credit crunch and our government will bring deflationary measures to the table.
ASB economists say the current surging inbound migration is unlikely to have the same sort of inflationary impacts previous migration booms have had
The westpac bankers that said the opposite will be reviewing their forecasts soon. Or waiting a long time until everyone forgot just how wrong they are. Those economists could run for politics when they get the boot
Probably because it's being used to push down wages in our labour market. Yeah that'll help reduce inflation... At the expense of our working classes.
Isn't it funny how when they need more inflation they flood the credit markets and pump up rich people's assets. And when they want to reduce inflation they pour in easily exploitable immigrants who are yet to learn how much it costs to live in NZ to suppress wages in our labour market.
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