NZ: Net migration up in October, longer-term downtrend still in place - Westpac

New Zealand’s net migration picked up a little in October, but the annual balance has continued to ease, and is set to fall significantly over the coming year, explains Satish Ranchhod, Senior Economist at Westpac.

Key Quotes

“Net migration picked up a little in October, rising to just under 5,600 (vs 5,200 last month). Nevertheless, the migration cycle has turned. On annual basis, net migration has fallen from over 72,000 earlier this year to 70,600 now. And looking at the breakdown of the monthly flows, a continued trend decline in net migration looks to be on the cards for the coming year.”

“Looking first at the latest month, we did see some uptick in new arrivals and returning New Zealand citizens. However, this looks like normal month-to-month volatility. Looking at the longer trends, the uptrend in both of these flows was arrested earlier this year.”

“Of more interest is what’s happening to departures. Departures of New Zealand citizens have levelled off. However, departures of non-New Zealand citizens have been steadily rising since mid-2016 and are now 30% higher than this time last year. 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. Importantly, this trend looks likely to continue for some time yet, and will drive a substantial downturn in total net migration over the coming year.”

“Combined with likely changes in Government policy, we expect that the above trends will see annual net migration will drop from around 70,000 now to 10,000 in 2021. Most of this change is due to natural forces that drive net migration (like the strength of the global economy), rather than policy.”

“The slowdown in net migration will have a number of significant impacts on the economy. Most notably, it will result in population growth slowing from 2.1% currently to 0.8% – a huge reduction in the rate of potential GDP growth and a key reason that we expect lower GDP growth over time.”