Slump warning on migrant cutbacks
A significant clampdown in the country’s immigration policy would cause widespread economic issues, an economist says.
In the worst case, the housing market would face a hastened correction which would hammer consumer confidence as interest rates rise.
Infometrics released economic growth forecasts on Friday which predicted slower near-term growth in construction and household spending.
As such, Infometrics expected gross domestic product (GDP) growth would fall below 2 per cent this year.
GDP growth was at 3 per cent in the year to March, but was only 0.5 per cent in the first quarter of this year: the second consecutive period of slow growth.
Infometrics senior forecaster Gareth Kiernan said growth was forecast to rebound next year, but this was contingent on the supply of labour provided by foreign migrants.
Businesses had become increasingly dependent on migrants, he said, illustrated by employment growth of 1 per cent a quarter over the past 18 months.
‘‘Without these inflows of foreign workers and returning New Zealanders, businesses would have struggled to meet growing demand, and cost pressures would be even more intense in areas such as the construction and tourism sectors.’’
Kiernan said this year’s election presented uncertainty because many political parties had signalled they favoured a reduction in migration over and above changes made in October last year.
Those changes, announced by Immigration Minister Michael Woodhouse, tightened the number of residency permits to be granted, as well as lifting the number of points a migrant had to attain to gain residency.
Woodhouse has since proposed further changes, which he said would attract migrants who brought the most economic benefit while managing the number and quality of new arrivals.
Labour leader Andrew Little followed with a policy announcement in June which he said could reduce immigration by up to 30,000 people year.
‘‘Closing off the ability to work during and after study for people who do low-level courses will stop backdoor immigration,’’ he said at the time.
Kiernan said a large drop-off in net migration would have negative repercussions for economic growth into 2019.
Activity would be constrained by higher labour costs, which would ultimately compel the Reserve Bank to raise interest rates earlier because of the inflationary risks this would create.
Faster lifts to mortgage rates and debt servicing costs, with debts at their highest since 2012, would threaten a jump in forced house sales, hastening a correction in the housing market and hammering consumer confidence.
‘‘Given the slowdown already occurring in sales activity and house price growth, this potential cocktail of rising interest rates mixed with a Government clampdown on migration would be lethal,’’ Kiernan said.
Infometrics said the surge in migration over the past four years could have been better managed, preventing housing market imbalances from becoming as critical as they have.