Migration

Migration and tourism helping to keep the economy ticking

Thursday March 03, 2016 Mark Cox

How will the New Zealand economy fare during 2016 and beyond?

 

As always, opinions vary, but the Treasury, for one, foresees a slowing of growth during the early part of the year, followed by a period of acceleration lasting until early in 2018.

 

To be precise, according to the Half Year Economic and Fiscal Update (HEFU), published in December 2015, the rate of growth in GDP will have slowed from 3.2% in the year to March 2015, to 2.1% in the year to March 2016.  However, it will then increase to 3.6% in the year to March 2018.

 

The Treasury blames the recent slow-down on weak global and domestic demand and lower terms of trade (the prices we get for our exports relative to the prices we need to pay for our imports), but the more important issue is where more rapid economic growth in the near future will come from.

 

The prospects for the global economy are uncertain, and weakness in our trading partners’ economies will undoubtedly hold back New Zealand’s economic growth.  But record net migration and a buoyant tourism sector will help brighten the outlook. 

 

Net migration into New Zealand during 2015 was 64,930, which is equivalent to roughly 1.4% of the population.  And the number in the year to January 2016 was higher still, at 65,911. 

 

migration 2016

 

The importance of this is that 1.4% more people in the country will add a roughly similar amount to domestic demand and help to compensate for weakness in overseas demand.  In addition, many migrants bring new skills and accumulated experience into the workforce. 

 

Net migration is widely expected to fall gradually during 2016, but to remain strongly positive by historical standards.  It will, therefore, continue to contribute to economic growth.

 

The number of overseas visitors coming to New Zealand during 2015 was also at record levels, again with the growth continuing into 2016.  The number of visitor arrivals during 2015 was 3,131,927, an increase of almost 10% over the 2014 number.  The number for the year to January 2016 was another record, at 3,172,941.

 

Moreover, the latest data show that international visitors are also spending a lot more while they are in New Zealand.  In the year to December 2015, the average visitor spent 19% more than the average visitor spent during the year to December 2014.  And this, combined with the fact that there were considerably more visitor arrivals, meant that total visitor spending went up by an extraordinary 31%; from $7.4 billion in 2014, to $9.7 billion in 2015.  This extra expenditure is equivalent to around 1% of GDP.

Again, it might be doubted whether this sort of growth in visitor numbers and spending can be sustained, but there are no signs yet of the growth tailing off.

 

Strong net migration and rapid growth in tourism are both good for the economy.  But (and there is almost always a “but”), an important question is “What else is driving economic growth?” 

Other BERL articles and publications, including our Monthly Monitor, address this question.  But the short and uncomfortable answer is “Overall, not a great deal”.