New Zealand Experiences: New Zealand is grappling with an immigration surge that defies expectations, leaving forecasters and policymakers perplexed. According to the Treasury Department’s half-year update, the annual net immigration projection for 2023 is now a staggering 117K more than double the forecast in May’s budget.
Looking ahead to 2024, the outlook predicts 58K net arrivals, marking a substantial increase from mid-year analysis. Consequently, the total net arrivals over the two years are anticipated to exceed 176K, surpassing the initial forecast by almost 90%.
New Zealand Issues
This unexpected surge in population poses a dual challenge for policymakers. On one hand, the influx of foreign workers has played a crucial role in alleviating labour shortages and tempering wage inflation.
However, the flip side reveals a potential upside risk to inflation, particularly in the context of heightened demand for rental housing or permanent homes. The normalization of immigration flows, initially projected for the end of 2025, has now been pushed back to 2026.
Reserve Bank Governor Adrian Orr has underscored the risk that high immigration levels might necessitate a prolonged period of monetary policy restraint. The Treasury shares this concern, emphasizing that the impact of migration flows on the economic outlook remains uncertain.
This unexpected and substantial immigration surge introduces complexities and challenges that policymakers must carefully navigate. Flexibility in policy-making will be crucial to adapting to the evolving economic landscape shaped by these unforeseen demographic shifts.
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