Data Flash (New Zealand)
External Migration - May 2002
In March 2002, New Zealand recorded the strongest seasonally adjusted net inflow of permanent migrants in over 40 years.
After easing somewhat in April, the net inflow has increased again in May, although not back to the March high. While,
we still believe that net migrant inflows have peaked, at this stage there is little evidence that inflows have begun to
ease substantially.
However, recent changes to migrant entry criteria should help to stem the inflow, as will the strengthening NZD and a
gradual improvement in the global economy.
Even assuming that net monthly inflows begin to gradually taper off over the remainder of the year, it looks
increasingly likely that net annual inflow during 2002 will exceed the 30,000 people assumed by the RBNZ in its May
economic projections (our own forecasts now imply a peak of around 35,000, while the average inflow over the last three
months is consistent with a net inflow of 41,000). The positive impact of the net migrant inflow on the demand for
housing and consumer durables, with consequent flow-on impacts on inflation, is one of the key factors underpinning the
Bank's decision to withdraw monetary stimulus more aggressively than other central banks. Our calculations confirm that
such a sustained swing in migration can have a marked impact on aggregate demand that, in the short-term, is likely to
far exceed the impact on labour supply.
Tourist arrivals rebounded in May after falling sharply in April, with the recent monthly pattern influenced by the
timing of Easter. Tourists arrives appear to be running around 6% ahead of year earlier levels - a good result, although
growth had been running at double digit levels prior to the 11 September terrorist attacks in the US. In our view, the
tourism sector will continue to be one of the key drivers of New Zealand's economic growth over the period ahead,
although the recent strengthening of the NZD will have a dampening effect on growth.
As argued elsewhere, we continue to expect the RBNZ to raise the official cash rate by 25bps to 5.75% at the 3 July
interim review. In light of continued strength in domestic demand, reinforced by strong migrant inflows, we expect the
Bank will want to return rates to a more neutral 6%, before pausing to assess the risks to the medium-term outlook as a
result of the strengthening NZD, declining commodity prices and a still uncertain global economic and political
environment.
Key points
Adjusting for seasonal effects, a net 3,440 people migrated to New Zealand in May, taking the annual net inflow to
31,231. This compares with an annual net outflow of 11,114 in the preceding year. To put this in perspective, the
turnaround in migrant flows over the past year is equivalent to 1.1% of the country's population. Large migrant inflows
have contributed to a substantial turnaround in the housing market. The charts below illustrate the latest housing
market trends (data released yesterday).
The number of tourist arrivals rose 15.4% mom in May following a 19.3% mom decline in April. Compared to last May, the
number of tourist arrivals was 6.4% higher. The timing of Easter explains the volatility over the past two months. The
underlying trend in arrivals remains a little weaker than prior to the 11 September terrorist attacks in the US.
The number of short-term departures by New Zealand residents rose 13.5% in May following a 19.3% decline in April and
was 0.9% lower than a year earlier. The timing of Easter has also impacted on this series. The strengthening NZD is
likely to result in a pick-up in overseas trips by New Zealand residents over the coming year.
Darren Gibbs, Senior Economist
***The attached research constitutes Deutsche Bank's proprietary information*** This, along with an extensive range of
other publications, is available on our web site http://research.gm.db.com