Signalled migration clampdowns would lead to an economic slump: Infometrics
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.
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GDP growth was at 3 per cent in the year to March, but only grew 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 coming to New Zealand for work.
Businesses had become increasingly dependent on migrants, he said, evidenced by employment growth of 1 per cent a quarter over the last 18 months.
"High levels of immigration have undoubtedly contributed to stresses around infrastructure and the housing market, particularly in Auckland.
"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.
This would see 5000 fewer residency permits planned for.
Since then, Woodhouse 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 an immigration policy announcement in June which he said could reduce immigration by up to 30,000 people.
"Closing off the ability to work during and after study for people who do low-level courses will stop backdoor immigration," leader Andrew Little 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 of New Zealand to raise interest rates sooner than otherwise 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 expected net migration would gradually ease over the next five years but a cautious approach was needed.
The surge in migration over the last four years could have been better managed, it said, preventing housing market imbalances from becoming as critical as they have.
"Ultimately, high migration levels are a positive reflection on New Zealand's economic performance," Kiernan said.
"We've been able to attract and retain workers in this country because our growth over recent years has outpaced that in other developed economies."