New Zealand's "wildly varying" net immigration rate is likely to peak with an annualised net growth of 33,000 by the second half of next year, Westpac economists believe.
The country saw its biggest monthly net inflow of migrants for 10 years in September, with the net gain of migrants passing 15,000 for the 12 months to September.
The Westpac economists said monthly net immigration had been above 2000 for three of the past four months, and above 1000 since March.
"The last time we had a similarly strong run was back in 2009," they said.
Following the Global Financial Crisis there was min-boom of net migration gains as many Kiwis stayed at home, culminating in an annual gain of over 22,500 people.
The Westpac economists said the reasons for the current gains were similar.
"Back then [2009], Kiwis stayed home as overseas work opportunities dried up following the Global Financial Crisis. This time, it’s the winding down of the Australian mining boom and the resulting drop in Australian business confidence that’s caused offshore job prospects to wane, and departures of New Zealanders to Australia to decline."
The economists said, however, that the latest migration upswing was likely to be bigger and last longer than the 2009 "boomlet".
"We now expect it to peak at an annual rate of 33,000 by the second half of next year, as Australian unemployment continues to rise and the Canterbury rebuild continues to attract overseas-based workers into New Zealand."
History shows
To give historical perspective, the highest net inflow of migrants was 42,500 recorded in the year to May 2003, while the biggest net outflow was 43,600 recorded in the 12 months to July 1979.
The Westpac economists said that historically, an extra 10,000 migrants had meant around 3% extra house price inflation.
"In other words, migration is turning from a drag on the housing market to a significant supportive factor.
"This is one reason why we expect house prices to keep rising next year (albeit at a slower pace), despite the headwinds of lending restrictions and recent rises in fixed-term mortgage rates."
The Reserve Bank has introduced "speed limits" on high loan-to-value lending principally to protect financial stability but also with the aim of dampening the housing market.
The RBNZ has estimated that the LVR limits, imposed from October 1, might knock between one and four percentage points off the rate of housing inflation in a year, while official interest rates might need to be about 30 basis points lower than otherwise would be necessary.
Worried about rises
The RBNZ has been leery of raising interest rates because of concerns about the high Kiwi dollar and the prospect that rate hikes would force the value of the dollar still higher.
But the central bank is nevertheless forecasting that it will need to raise rates from next year onward, possibly lifting the Official Cash Rate by as much as two percentage points (from the current 2.5%) by 2016.
The Westpac economists said they were now are starting to doubt the idea of a March OCR hike, "which has been our forecast since April this year and is now priced in by markets".
"The recent appreciation of the exchange rate looks as though it will be maintained, and our long-held view is that the housing market will slow in the final months of this year. Under those conditions, the RBNZ would choose not to hike in March, despite the strength of the domestic economy. Subject to confirmation that Thursday’s OCR review is along the lines we expect, we are therefore likely to shift our call to forecasting an April 2014 start date to the OCR hiking cycle."
But while that might seem good news, the Westpac economists think that longer term the RBNZ is still likely to push rates higher than the central bank currently hopes it will need to.
How much?
"For markets, almost as important as the start date of the OCR hiking cycle is its extent. Everybody agrees that the OCR will have to rise to its neutral level or beyond. But that begs the question: what is the neutral OCR?
"The RBNZ gave a speech a couple of weeks back contending that the neutral OCR had fallen from 5.8% in the mid-2000s to around 4.3% today. We issued our own take on the neutral OCR in a bulletin last week. We agree with the idea that the neutral OCR has fallen to around 4.3% today.
"However, we make the additional point that neutral is not a static concept. There are very good reasons to expect the neutral OCR will rise over the next five years, including higher inflation expectations, falling bank funding premia, lower global population growth, and possibly even a reduction in the intensity of global preferences to save.
"We are working off the assumption that the neutral OCR will rise to 5% by 2018. If the OCR has to rise a little above neutral to control the inflation consequences of the huge Canterbury rebuild, that implies a peak OCR of 5.5% – on our current forecast, we’ll reach that level at the end of 2016."
29 Comments
Westpac are undoubtably correct on this one and I do recall a few years ago reading with interest that this would happen and well done on their correct foresight.
There are a few reasons to suspect the impact on house prices will be far more muted than in the 2003 go. First - the NZD was quite low relative to most currencies making housing for migrants relative attractive in their local currency terms. That is clearly no longer the case. The second is that house prices were quite low back then and it was easy for them to run up. Prices are massively inflated now making it incrementally harder for them to continue. I suspect over 2014 migration will provide more of a floor preventing house prices falling rather than more massive stimulus.
The sad thing is that this is entirely controllable - our government could actively manage net migration and thus house prices - but doesn't. Why not?
Keyser - it's only controllable up to a point. Much of the recent migrations gains have been because of far fewer kiwis leaving for Aus and other countries. Thats pretty damn hard to control. Does anyone know to what extent the govt pulls back on immigration when kiwis start staying at home?
Of course - but that trend has been well signalled by the likes of Wespac forever. The inward flow of external immigrants however is quite steady. Why doesn't government just decide to keep the net number static, and throttle the number of external immigrants coming in to avoid these massive booms? It is completely do-able.
a big concern must be what these migration figures mean for unemployment, especially as much of the rise is due to fewer kiwis leaving (because of less opportunities in Aus) compared to more immigrants coming in. If its driven more by the latter then the impact is more on the positive side for employment, as most immigrants coming to NZ will either have jobs lined up or will be bringing investment which will create jobs.
Westpac think unemployment will be under 6% by year's end, I've argued since the start of the year it will be close to 7% - either just under or just over. Yes I realise there is complexity, and that of course population growth generally increases economic growth and therefore employment. But I think in this case the negatives will outweigh the positives in a employment sense, given much of the increase is because of fewer kiwis leaving. And because of this situation the employment prospects of some 100,000 plus high school and uni students just got tougher this summer.
welcome to your view. We will see, I guess. I've been wrong before, as have the economists. Maybe it will be in the middle as you say
yeah heaps going on (I'm off work with a bad head cold today). Voted in top 10 liveable cities of the world, and now top 10 city destinations from lonely planet. Amazing food, wine, beaches, arts and culture, sport and climate, and reasonable traffic and cost of living - what is there to not be happy about?. Would be good if there were a few less bogans, a more dynamic economy and a few more job opportunities, but hey you can't have it all!
Im not sure its much of a biggee either way. I mean its more or less flat, if we were recovering so well, why isnt that reflected in a significantly dropping number?
I also think we should be wary of a one off number, seasonal employment up for xmas would be expected? and back down or worse for after....
So maybe the "bet" should be March 2014, or the first quarter? If we see <6% for 1/4 til march that would be good news, if we see 6.5% or worse....oh dear.
regards
"strong" yes, you can have too strong and hence lots of inflation, not good.
Really though I'd suggest there isnt a whole lot of any recovery its within a noise band. Yet various banks etc seem to be telling us otherwise, here comes inflation and OCR hikes, 2 years from now OCR a lot higher, etc etc.
Rinse and repeat for 3 or 4 years now. I suppose like a stuck clock sooner or later they will be right, and then they will claim credit....
regards
It's true much of the immigrants 'gain' is returning New Zealanders. But there is the astonishing figure also, that near one quarter of residents were not born here.
That has a major impact. Huge.
Many of those are great contributors. And many are not.
We have to have the conversation about what we want. And in my view we need to screen out many more (the non contributors)
I don't see 'the economy' benefits merely from a bigger population.
I agree. Being born here I am starting to object to the dilution of my share of NZInc.
For my lifetime we have always had some immigration but the recent 10+years it has been a deluge and only disguised by the seemingly continued emigration to Australia.
We coped well with the Dutch and lesser European influx in the early fifties, the continued UK absorption and imported Pacifika 'factory fodder'. Those numbers spread around NZ fairly evenly. The recent moves have largely been concentrated on large urban areas and particularly in Auckland which is expected to deal with the demands.
Per se, immigration is good. However it is well past time to stop the flow for a time while we catch up with infrastructure and facilities. No amount of incoming cash assets from better off immigrants is a substitute for sacrificing life quality. In fact it is likely this cash is a significant cause of our overvalued currency and hence the slow ability to correct exports and the economy
For most of us, even those like me, born here, immigration is the reason we are here be it by the good luck or good judgement of parents, grandparents etc.
So let me just change the wording to immigration has been good.
I fear that right now our intake is just too fast to allow us to cope, especially when there are hurdles of language and culture to jump higher than previously.
Nuff said.
.. you're not wrong BB ... I can remember when the only FF to be had was Fish'n'Chips ...
Now we got American burgers , pizzas , Thai , Indian , Vietnamese , Chinese , Turkish , Egyptian ...
.. life just gets better and more exciting with all these nationalities coming on board ... Bring 'em on , the more the merrier !
Yer right GBH. Gee I should be grateful!
But do I need all those mainly Asian eaterys in my main street. Last count there were three each Chinese, Indian and Thai plus one Japan, one Malay but nil French or Italian . Oh I forgot the one pretend Turkish and one pretend Mexican, two pizza some nondescript burger joints and coffee outfits daytime and........
...... a lone fish and chippy
I suppose the 'All Mains $10' midweek may be a bonus.
Those shop landlords are also being helped out for what would otherwise be derelict shopfronts between the banks and real estate agents.
;o))
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