The Economy Hub: Immigration boom flatters

Strong immigration is flattering New Zealand’s economic growth and the boom runs the risk of undermining the future of unskilled workers as well inflating housing costs, says Westpac chief economist Dominick Stephens.

Immigration is at record highs with a net gain of more than 67,000 migrants for the year to February.

Stephens says that with record immigration adding 2.1 per cent to the New Zealand population in 2015 and GDP growing at 2.3 per cent, real growth per capita was not much above nil.

That was creating a division in the way businesses and households were viewing the state of the economy, he said.

“From a business perspective two per cent population growth means more foot traffic through the shops,” he said. “From a household perspective, they may be finding the pie is growing but there are more slices in that pie. I think households are doing it tougher than businesses.”

Chris Green, First NZ Capital director economic and strategy, said immigration was providing support for the economy and having some inflationary effect.

Although was some evidence emerging that some of the suppression of wage growth we were seeing was a result of strong migration, particularly student migration
Stephens said he had concerns about the impact on the unskilled workforce.

From a business point of view having people on a working holiday willing to work cheaply was great.

From a business perspective two per cent population growth means more foot traffic through the shops.

“But I do worry about lower skilled New Zealanders missing out on a chance to get some of those service jobs because higher skilled foreigners are coming. If they were here to stay that would be fantastic, but they are going home again. And we’re missing the chance to upskill some of our more vulnerable people.”

The question for policy makers was: what is the optimal migration level for New Zealand said Green.

It was quite clearly a key factor underpinning housing activity in Auckland but given the uncertainties about the effect on demand more research was needed, he said.

There was also a risk for the economy that if immigration were to fall away quickly then it would impact demand in the economy and add to the need for interest rate cuts.

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