The latest Monetary Policy Statement from the Reserve Bank of New Zealand explicitly forecast a “recession”, with “the peak-to-trough decline in the level of GDP over 2023 expected to be about 1% in the central projection”:
However, the latest immigration data from Statistics New Zealand showed that a net 51,955 migrants settled in the country in the year ended February.
ANZ and Westpac economists also believe that total net arrivals could hit a record 100,000 or more this year if current trends persist.
This unexpected surge in immigration has raised fears that inflation may remain stubbornly high, even if it helps to moderate wage growth.
In turn, the Reserve Bank may need to keep interest rates higher for longer.
“There is a risk that we don’t get the recession and that we keep sort of plodding in a lot stronger environment which would frustrate the outlook for inflation, would frustrate the central bank, keep interest rates higher for longer”, warned Kiwibank chief economist Jarrod Kerr.
“If the demand impulse (from migration) overrules the supply effects it would take inflation longer to fall to the RBNZ’s target and could even necessitate more tightening than anyone is so far bargaining on”, said Stephen Toplis, head of research at the Bank of New Zealand.
Infometrics’ lead economist Brad Olsen said that stronger immigration is great news for firms in need of people, but it also creates significant challenges.
Immigration helps to hold wage inflation at bay by alleviating pressure on employers to raise compensation. But at the same time, it helps keep consumer prices stubbornly high.
“Adding any additional demand to the economy at the moment does seem to be a challenge for New Zealand given that inflationary pressures are still high”, Olsen said.
In a briefing note, ANZ said that “the annualised rate [of immigration] for the first three months of the year is nearly 130k – well in excess of the highs we saw pre-COVID”.
“That certainly adds upside risk to our forecasts for activity, labour supply and house prices, as we all budge up”.
“All else equal, greater labour supply will ease capacity constraints in the tight labour market and reduce wage pressures”, ANZ said.
“But wages tend to respond with a lag, and new migrants entering the country add to demand in other areas, particularly the housing market”.
“The RBNZ noted in April that it [strong immigration] poses upside risks to inflation in the medium term”, ANZ concluded.
Much like in Australia, mass immigration is now working against the interests of workers, renters, mortgage holders, and the Reserve Bank’s efforts to tame inflation.
