14 Jul 2017

Economist warns against slashing immigration flow

1:49 pm on 14 July 2017
Immigration to New Zealand.

Slashing immigration could lead to an economic slump, Gareth Kiernan, chief forecaster of the economic consultancy Infometrics, says Photo: RNZ

Gareth Kiernan, chief forecaster of the economic consultancy Infometrics, is cautioning political parties about the economic cost of a sharp reduction in immigration.

He said the economy has needed and been able to absorb the more than 70,000 immigrants who had settled here in the past 12 months to fill skills shortages.

"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."

He said many overlooked the fact that a large part of the immigration gains had been the number of New Zealanders returning from overseas because of strong economic growth, and a large reduction in the number of people leaving.

Mr Kiernan accepted that the high numbers of immigrants had put pressure on housing and infrastructure, and could have been better managed, but said without them the economy would face some big negatives such as rising labour costs and inflation, which would trigger higher interest rates.

"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," said Mr Kiernan.

"Faster lifts in mortgage rates and debt-servicing costs would threaten a jump in forced house sales, hastening a correction in the housing market and hammering consumer confidence."

He said immigration was probably close to peaking and would start to naturally decline, especially as growth around the world picks up attracting New Zealanders to look for work overseas.

Mr Kiernan said the economy could comfortably manage an inflow of up to 25,000 people a year.

"We need to take more of a softly-softly approach than some of the politicians are advocating."