Satish Ranchhod
Monthly net migration eased again in September to 5190, down from 5420 in August.
This has seen the annual net inflow of migrants drop back to 71,000. While net migration remains elevated on an annual basis, the turn in the cycle that we have been predicting is occurring. This reinforces our expectations for softer GDP growth over the coming year.
August 2017 net migration
Monthly net migration: +5190 (Previous: +5420, Westpac: +5800)
Annual net migration: +71,000 (Previous: +72,100, Westpac: +71,600)
September saw net immigration flows softening for a third consecutive month.
The number of people entering the country on a permanent or long-term basis fell to 5190. That was down from 5420 last month, and well down on the levels of over 6000 people per month that we were seeing this time last year.
High on annual basis
On an annual basis, net migration remains high at 71,000. But the annual inflow is now off its peak, and a further slowdown looks to be on the cards.
Underlying the slowdown in net migration has been a pickup in departures of non-New Zealand citizens, which have risen from around 1900/month last year to 2500/month now. This group includes people who would have come over in recent years on temporary work and student visas. Typically, those who come over on these programs stay for around three to four years.
Given that the surge in foreign arrivals began in 2013, we have been expecting to see a corresponding surge in departures – that looks to have finally arrived, and we expect it to continue over the coming months.
On top of this, we are also seeing signs that new arrival numbers are declining. In September there was an inflow of 7850 people – down noticeably from 8600 just a few months ago.
Net departures of New Zealanders remain low.
Implications of change
Net migration and population growth have been key drivers of demand and GDP growth in recent years. This has masked what has actually been quite modest increases in economic output in recent years on a per-capita basis.
Our forecasts have incorporated a slowdown in net migration for some time, with earlier strength in arrivals expected to be followed by a lift in departures.
We are now seeing this occurring. This reinforces our expectations for softer GDP growth over the coming years, especially as it comes on top of other signs that the economy is losing momentum, including the slowdown in the housing market.
Lower net migration would also imply less of a boost to spending going forward. Depending on the makeup of migration, this could also be important for the labour market and the mix of skills in the economy.
With a change in government, we are likely to see a tightening in migration policy over the coming months. Both Labour and NZ First campaigned on reductions in net immigration. While we’re still waiting on firm policy details, it looks like we will see a reduction in arrival numbers of around 20,000 to 30,000 people per year.
That would be in line with Labour’s announced policy intentions, but less severe than the change NZ First had proposed. The reductions will be focused around lower skilled arrivals and students.
In terms of the economic implications, the Reserve Bank, Treasury and ourselves are already forecasting a substantial reduction in net immigration over the coming few years (our own forecasts have arrivals dropping back by 20,000 people over the next few years as the global economy continues to improve). The potential policy change could imply a slightly faster reduction than we had been assuming, but wouldn’t materially alter our forecasts. Importantly, we will still be left with significant pressures in terms of housing demand.
Satish Ranchhod is an Economist at Westpac.
